Foreign Exchange Market

In class we talked about capital flows and how real interest rates affect the international flow of money (side by side loanable funds models). 

Afterwards, we talked about how currencies are priced in the foreign exchange market. A currency appreciates when the value of a currency is worth more relative to another currency.  A currency depreciates when the value of a currency is worth less relative to another currency.

*When a countries currency appreciates, exports fall and imports increase (foreign goods cheaper)*

*When a countries currency depreciates, exports increase and imports fall (foreign goods expensive)*

Lastly, we discussed the real exchange rate which uses the exchange rate and takes into the price index (CPI, GDP deflator)

The notes are attached below and the homework is listed.

Notes - Capital Flows

HW - Read Modules 43 and 44
          Complete Section 5 Review (attached to last post)
     

**Make up any quizzes ASAP**