Chapter 33
International Finance
Copyright © 2021 by W. W. Norton & Company, Inc.
Pre-class music: “I Think I’m Gonna Like It Here” by Elvis Presley. (See Tip #692.)
In this song, the King of Rock and Roll takes a trip down to Mexico and marvels at all
the fun and beauty the country has to offer. Elvis clearly has a demand for the goods
and services offered by the Mexican town he’s in; therefore, he must exchange U.S.
currency for the local currency, the peso, which he spends almost immediately.
This song is a nice introduction to the characteristics of the foreign exchange market.
,Previously
U.S. imports and exports are higher than previous
generations.
• Trade deficit driven by deficit in goods.
• U.S. has a positive trade balance in services.
Trade creates value when countries specialize in producing
goods in which they have a comparative advantage.
Barriers to trade exist for various political and economic
reasons, but barriers are eroding worldwide.
,Big Questions
1. Why do exchange rates rise and fall?
2. What is purchasing power parity?
3. What causes trade deficits?
, International Finance
Foreign Currency Trade Deficits
Markets
• Exchange rates • Balance of
• Appreciation payments
• Depreciation • Current account
• Capital account
[Michael Nelson/EPA/Shutterstock]
International Finance
Copyright © 2021 by W. W. Norton & Company, Inc.
Pre-class music: “I Think I’m Gonna Like It Here” by Elvis Presley. (See Tip #692.)
In this song, the King of Rock and Roll takes a trip down to Mexico and marvels at all
the fun and beauty the country has to offer. Elvis clearly has a demand for the goods
and services offered by the Mexican town he’s in; therefore, he must exchange U.S.
currency for the local currency, the peso, which he spends almost immediately.
This song is a nice introduction to the characteristics of the foreign exchange market.
,Previously
U.S. imports and exports are higher than previous
generations.
• Trade deficit driven by deficit in goods.
• U.S. has a positive trade balance in services.
Trade creates value when countries specialize in producing
goods in which they have a comparative advantage.
Barriers to trade exist for various political and economic
reasons, but barriers are eroding worldwide.
,Big Questions
1. Why do exchange rates rise and fall?
2. What is purchasing power parity?
3. What causes trade deficits?
, International Finance
Foreign Currency Trade Deficits
Markets
• Exchange rates • Balance of
• Appreciation payments
• Depreciation • Current account
• Capital account
[Michael Nelson/EPA/Shutterstock]
