Angela Scharf, Ch.11, Q.7

What I learned in this chapter is the basics of international exchange. The world currencies are no different than national goods and services in that they essentially "change prices" on a supply and demand curve. If the demand of currency is down, so does the value. When it comes to international trade, the concept is slightly more complex, however when broken down is not unlike national trade. It is just capitol that extends beyond the international borders. The issue in international exchange is that not all mediums of exchange have and equal ratio in value. Furthermore, because most modern economies don't have currencies with any intrinsic value, the rate at which one currency can be exchanged for another is called the exchange rate. This also carries over into the Purchasing Power Party (PPP) or the idea that one dollar that can purchase a set amount of goods and services that can then be translated into another international currency based on how much of their money is used to buy those same goods and services. For example, if 50 American dollars bought a certain good, and those same goods cost 75 Japanese yen, then it could be implied that 75 yen is worth roughly 50 American dollars. Another factor that has to be recognized is the difference between the nominal exchange rate (as earlier stated-the rate at which one currency can be exchanged for another) and the real exchange rate (which takes into account inflation).