AOF Business Economics Unit 5 Lesson 13 Currency

Currency is a type of commodity Currencies can be exchanged and purchased for an agreed-upon value, just like other commodities.

Like other commodities, currencies have markets Currencies can be bought and sold in several ways, including: • Interbank trading • From banks • Through brokers and traders In what ways are currency markets similar and different from the stock market?

The exchange rate is the market value of a currency, and it reflects supply and demand Generally, the more a currency is in demand, the higher its value. If a currency is overvalued, are more or fewer people likely to buy it?

Many factors influence the demand for a currency Positive Negative • Stable government • Unstable government • Low inflation • High inflation • Strong, stable economic growth • Slow or erratic economic growth • Positive trade balance (exports exceed imports) • Trade deficit (imports exceed exports )

Understanding currencies is important for businesses Businesses deal with currency exchange in many different ways: • Purchase resources and labor in foreign currencies • Sell products and services in foreign currencies • Invest their earnings in foreign currencies Buying resources and labor Currency out Currency in Selling products

Business economists contribute to important decisions about currencies • They help businesses forecast the values of the different currencies in which they trade • They help make decisions about which markets to sell goods and services in • They understand how costs vary to produce goods in different countries