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= = == =Foreign Exchange and Currencies=

Foreign Exchange Markets

 * The most important function of a foreign exchange market has been to convert one currency into an equivalent amount of a second currency
 * Used for three different types of international transactions:
 * Trade
 * Tourism and travel
 * Investing
 * The markets exist for the buying and selling of national currencies


 * A Foreign Exchange Rate is set between many different countries to regulate the trade
 * Example: 1 Euro is roughly $1.35 United States Dollar
 * Adjustable-Peg System: a system in which the exchange rates between currencies are fixed at specific values instead of reflecting changing economic conditions
 * Lasted for roughly 20 years before countries started to argue that it could no longer work because of the price of goods and the idea of supply and demand
 * Devaluation: a reduction in the value of nation's currency
 * Appreciation: an increase in the value of a nation's money relative to that of another nation
 * This lead into the Floating Exchange Rate: the value of a currency is determined by the laws of supply and demand


 * Each nation has a Balance of Payments: an annual accounting record of all the payments and receipts occurring between its residents, businesses, and governments and the residents, businesses, and governments of other nations
 * Divided into the current account and the capital account
 * Current Account: shows the dollar value of goods and services that U.S. citizens and companies bought from and sold to other countries, the income that Americans and U.S. multinational corporations earned in other countries, and the income that foreign individuals and companies earned in the United States
 * Capital Account: keeps track of the flow of money or capital between nations


 * Balance of Trade: the difference between a nation's imported and exported products
 * This merchandise balance of trade has historically been the most important factor in determining the nation's overall balance of payments
 * Trade Surplus: when the United States exports more than it imports
 * Trade Deficit: when the United States imports more than it exports