By the end of this chapter, students should be able to:
- Define foreign exchange and explain its importance.
- Describe the market for foreign exchange.
- Explain why countries shouldn’t be proud that it takes many units of foreign currencies to purchase a single unit of their currency.
- Define purchasing power parity and explain its importance.
- List and explain the long-run determinants of exchange rates.
- List and explain the short-run determinants of exchange rates.
- Define the interest parity condition and explain when and why it holds.