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Overview of Currency and Trade Concepts

This document provides an overview of unit 7 topics including: foreign exchange markets; balances of payments including assets, liabilities, current and financial accounts; currency exchanges involving prices, quantities, appreciation and depreciation; comparative advantage involving absolute advantage, comparative advantage, and input/output problems; and graphs needed to identify for multiple choice questions like comparative advantage matrices and balances of payments. Key concepts covered are balances of payments line items, how current and financial accounts equal each other, determinants of currency flows, and understanding absolute vs. comparative advantage and opportunity costs.

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3 views1 page

Overview of Currency and Trade Concepts

This document provides an overview of unit 7 topics including: foreign exchange markets; balances of payments including assets, liabilities, current and financial accounts; currency exchanges involving prices, quantities, appreciation and depreciation; comparative advantage involving absolute advantage, comparative advantage, and input/output problems; and graphs needed to identify for multiple choice questions like comparative advantage matrices and balances of payments. Key concepts covered are balances of payments line items, how current and financial accounts equal each other, determinants of currency flows, and understanding absolute vs. comparative advantage and opportunity costs.

Uploaded by

renee
Copyright
© All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd

Unit 7 Overview

Big Chart of Graphs:


Foreign exchange markets- Dollar and Other currency
Loanable funds
Aggregate Model
Graphs you need to draw or identify for multiple choice questions:
Comparative Advantage matrix
Balances of Payments

Assets/Credits for nations

Liabilities/Debits for nations

Current Accounts for nations

Financial/Capital-Financial Accounts for nations

Reserves for nations

Current Accounts = Financial Accounts =


Capital/Financial Accounts
Trade Deficits
Trade Surpluses

What you should know:

BOP assets/credits

BOP liabilities/debits

BOP Current Account items

BOP Financial Account items

Current Accounts will equal Financial Accounts

Assets are demand for a currency

Liabilities are supply of a currency


Currency Exchanges:

Prices of Currencies (labels on the Y axis)

Quantities of Currencies for International Trade and


Investments

Currency Appreciation

Currency Depreciation

Exports are Money Inflows and a positive for a


country
Imports are Money Outflows and a negative for a
country
Determinants of Currency Flows
Rules of exchange

What you should know:

Currencies are a product and move on supply and demand graphs.

Know the determinants that change supply and demand of currencies.

Know the rules of changes.

Connect depreciation and appreciation of currencies with exports.

Exports affect GDP in a positive way with money coming to a country.


Comparative Advantage:

Absolute Advantage
Comparative Advantage
Input Problems

What you should know:

Absolute advantages if two countries have similar resources


Output comparative advantages
Input comparative advantages
Lowest opportunity costs for outputs
Least effort needed to create one output for input problems
Trade options will be an improvement over domestic opportunity costs

Information on Activity 7-1 through 7-5


Information in Modules 41-45

Output Problems
Opportunity Cost Decisions
Trade Ranges and Terms of Trade

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