## Introduction to Exchange Rates and the Forex Market

Different countries have different currencies, and understanding how their values are determined is fundamental to understanding how trade between nations takes place.

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## The Determinants of Exchange Rates in a Floating Exchange Rate system

To understand how a country’s currency might appreciate or depreciate, you must understand the variable that can affect demand or supply for the currency on the forex market. This lesson will introduce a useful acronym (TIPSY) for remembering the determinants of exchange rates, and evaluate the advantages and disadvantages of floating exchange rate systems.

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## Managed Exchange Rate Systems part 1

To avoid the volatility and uncertainty that often accompany a floating exchange rate, some governments and central banks choose to manage or peg their currency’s value against another currency. This lesson explains the tools by which an exchange rate can be managed and maintained within a range of values, using the Swiss National Bank’s decision to peg the Swiss franc against the euro in 2011 as an example.

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## Managed Exchange Rate Systems part 2

To avoid the volatility and uncertainty that often accompany a floating exchange rate, some governments and central banks choose to manage or peg their currency’s value against another currency. This lesson explains the tools by which an exchange rate can be managed and maintained within a range of values, using the Swiss National Bank’s decision to peg the Swiss franc against the euro in 2011 as an example.

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## The Relationship between Interest Rates and Exchange Rates (the net export effect of Monetary Policy)

This lesson examines the relationship between interest rates and exchange rates by establishing the positive net export effect of Monetary Policy.

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## Calculating Prices in different Currencies using Exchange Rates

If you know the exchange rates of two currencies, you can calculate the prices of goods in one country in another country’s currency. This lesson walks you through several problems in which calculations of different exchange rates allow us to determine how much goods and services in one currency will cost in terms of another.

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## Calculating Exchange Rates from Linear Equations

An exchange rate is simply an equilibrium price in a market for a currency, and like the prices of other goods, services and resources, a currency’s value can be calculated if the equations for supply and demand are known. This lesson will demonstrate how to calculate an equilibrium exchange rate from linear equations, and in part 2 demonstrate how an intervention by a central bank can lead to a change in demand or supply of a currency and thus trigger a change in its value.

Part 1:

Part 2:

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## A Quiz on Exchange Rate Manipulation

These two videos demonstrate the solutions to two questions on a quiz I recently gave my year 2 IB Economics students on exchange rates. Before you watch the videos, consider attempting the quiz yourself. It can be downloaded here: Exchange Rates Quiz

The explanations are done in two videos. Here’s the explanation for Quiz question #1:

And here’s the explanation for #2:

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## How to succeed on the AP Economics FRQs – Macro Questions 2 and 3

Every AP Macroeconomics exam include three Free Response Questions (FRQs), two of which are short FRQs. This video will walk you through the answer to two past short AP Macro FRQs and provide tips and hints on how to successfully approach an answer to these questions.

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