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This week's discussion has to do with foreign exchange - currency exchange
This week's discussion has to do with foreign exchange - currency exchange. The exchange of one currency for another is simply an intermediate step in the purchase of stuff (goods or services) from a different country. To understand the exchange rate, think of it as a price, and the currency as a "thing" like carrots or wheat. So, if the dollar is our "thing" (carrots, wheat), and if it takes 100 yen to buy $1, then the price of the thing in yen is 100 per thing.
Money is worth what you can buy with it, so if $1 buys you a soda in the vending machine, and 100 yen buys you a soda in the vending machine, then .. maybe .. $1 and 100 yen get you the same things ... Economists call that Purchasing Power Parity. If you want to know more, look up the Big Mac Index from The Economist.
The discussion question:
In conversation, our connotation of the word "strong" is something good or desirable, and our connotation of the word "weak" is something bad or undesirable. Is it the same with currency exchange rates? Why would a decline in the value of the dollar prompt BMW, or VW, or Mercedes-Benz to build production plants in the US? Is a strong dollar good or bad for the US? In your answer, be specific by referring to material in chapter 20, and/or by finding more current news.
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