6.2 Exchange Rates
An exchange rate is the price of one currency in terms of another; a currency appreciates when it buys more foreign currency, depreciates when less.
An exchange rate is just a price: how much of one currency it takes to buy another. Every rate can be quoted both ways, if 1 euro costs 1.25 dollars, then 1 dollar costs 0.80 euros, and the two quotes are reciprocals. When one currency appreciates, the other must depreciate.
Appreciation means a currency buys MORE foreign currency; depreciation means it buys less. A stronger dollar makes foreign goods cheaper for Americans (imports rise) and American goods pricier for foreigners (exports fall), the trade consequences arrive in Topic 6.5.
AP Macro focuses on floating exchange rates, set by supply and demand in the foreign exchange market. Under a fixed regime a government pegs the rate and must intervene to defend it, but the graphs you draw all year assume floating rates.
Key terms for 6.2
Drag the curves above, or open the full Exchange Rates sandbox. Then draw it yourself for a graded check or watch the step-by-step walkthrough. Teaching this? Put this graph on your own class page, free.
Misreading a rise in the dollars-per-euro rate as dollar appreciation. If it takes MORE dollars to buy a euro, the dollar has DEPRECIATED and the euro has appreciated.
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A full lesson plan for 6.2, with timings, a warm-up, guided practice and an exit ticket.
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