Where to exchange currency in dc
The Foreign Exchange Market- Macro 6.3
hi - Clifford its ac/dc calm we're
talking about key concept that you
actually have to know it's called
foreign exchange in this video to
explain the idea of supply and demand
for different currencies right and then
I talked about the shifters in the next
video I want to do is I want you to
practice okay figuring out which
country's currency appreciates with when
depreciate
right now it's got two different
currencies right this is not products
this is currencies right supply and
demand for dollar supply man for
Canadian dollars
alright so US dollars Canadian dollars
over here we got to figure out what's
the price of an American dollar
well it's how many Canadian dollars you
get for each US dollars and so it's
always the other currency only currency
that you're analyzing right we're
looking at US dollars this is the
quantity of US dollars
well it's good old-fashioned demand and
supply that gets the exchange rate the
exchange rate is how many canadian
dollars you get for each american dollar
in this status start off let's say it's
a one-to-one relationship you get one
canadian dollar for one US dollar and
there's obviously some sort of quantity
out here available for people to
exchange their currencies on the other
side we've analyzed the canadian dollar
so up here it's going to be the US
dollar divided by the canadian dollar
the valley of the canadian dollars how
many US dollars you get for it down here
is the quantity of canadian dollars
available in the foreign exchange market
here the demand here's a supply exchange
rate what's going to be one to one
relationship that's the idea okay now
before we go any further we have to
figure out who is demanding and who is
supplying or analyzing dollars who is
the ones that demanding the United
States dollars don't say Americans right
Americans don't demand our dollars we're
supplying right the demand is determined
by Canadians right who supplying wells
were supplies by the US you got to keep
that straight that can help you out
later on now over here who demands
Canadian dollars before exchange well
Americans this is by Americans and
Canadians are the ones who are supplying
now before we shift this thing let's
talk about the four things that will
shift right the four shifters of foreign
exchange all right here they are the
first line is tastes and preferences
another one is price level
inflation the next one is going to be
income
the last one is interest rates and
that's what we're going to use for this
example okay
let's focus on interest rates let's say
that in the United States right the
interest rate is 15 percent right and in
Canada the interest rate is 2 percent so
let's think about what a Canadians
Americans going to do the Canadians are
going to take their dollars convert them
into American dollars and then turn
around and buy American bonds and get
that 15 percent return right the demand
is going to increase for American
dollars why well because Canadians want
more if the Canadians want these they've
got to supply their Canadian dollars
right they've got to go to the foreign
exchange and supply those so when they
supply them that lead to an increase in
supply of Canadian dollars and that ends
up being a new location right here and
here let's say the situation of being a
two-to-one what does this have to be it
has to be one to two right what's
happening I states dollar did it
appreciate or depreciate well it
appreciated appreciation is when the
currency gets stronger or now you get
two Canadian dollars for each one
American dollar so the United States
dollar appreciated relative to the
Canadian dollar what happened the
Canadian dollar well it depreciated now
you need two Canadian dollars to get one
American dollar right now I'm going to
give you a rule here like demand and
supply always increase or decrease
together if one country wants another
country's currency they've got to supply
more of their currency to do it quick
bonus round that's one way to analyze it
member I told you was that Canadians are
going to want more American dollars
because they want to get that higher
interest rate they want to get that
return of 15% compared to 2% they get
their own country there's also something
else going on here
right normally the United States would
turn around and go buy oak Americans
with buy a certain number of
maybe in assets but when we have a
higher interest rate are they going to
do that anymore the answer is no and so
it also would happen in this situation
is the demand would fall for Canadian
dollars right the Americans would prefer
not to have Canadian dollars they'd
rather have American dollars but because
they get a higher interest rate United
States is demanding less Canadian
dollars and they will be supplying less
US dollars in the foreign exchange right
now you're thinking like whoa well which
one is it well it depends on what the
questions asking if the question asks
you well what happens to the demand when
the interest rates higher the United
States will demand would go up what
happened to supply well supply would go
down the plane is no matter how you draw
this thing's United States dollar is
definitely going to appreciate no matter
what happens Canadian dollar is
definitely going to depreciate okay
hopefully this makes sense
now it's time to practice okay good luck
until next time
