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Unit 8: Global Finance

A.  Read the following selections from the Margin Notes by clicking on each link.

Global Finance The Balance of Payments and International Capital Movements Exchange Rates

 

B.  Watch these presentations. When you click on one of the links below, a new screen will pop up. Use the scrollbar on the side of the new screen to navigate. You need Adobe Reader to view PDF files.

[Each may take a few minutes to download.] The Global Economy Part I The Global Economy Part II International Finance Part I

International Finance Part II International Finance Part III Exchange Rates Part I Exchange Rates Part II

 

C.  (Optional) Read the following chapters from the textbook.

Chapters 15 - 16

 

D.  The following Optional Links will help you do better in your course but they are not required.

ECON 2302 Project Rubric (Look at the rubric before starting your project.) How to Study for Tests (PDF)

Why Trade? (PDF) Test Yourself: International Trade and Finance (PDF)

 

E.  Project: Working with Exchange Rates (20 points)

For your project you'll be looking closely at the concept of exchange rates.

It's important that you read again the Exchange Rates section of your Margin Notes. You might also want to visit How Stuff Works to read an article on how exchange rates work. Once you are certain you understand the basics of exchange rates, complete all four parts of your project following the instructions below.

 

Part 1: Calculating Exchange Rates

To calculate exchange rates, begin with the equation of one currency equal to another. For example, the table below indicates that the price of 1 US Dollar, in terms of British Pounds, is 0.64 Pounds; therefore, US$1 = £0.64, and £1 = US$1.56. You can then use that information to find out other things. Use this exchange rate information from December 2014 to answer the six questions below. Number your answers to the questions.

SELECTED EXCHANGE RATES

£1  =  US$1.56	US$1  =  £0.64	British Pounds
C$1  =  US$0.86	US$1  =  C$1.16	Canadian Dollars
		Egyptian Pounds
1  =  US$0.02	US$1  =  59.58	Russian Rubles
1  =  US$0.09	US$1  = 11.63	South African Rands
₣1  =  US$1.02	US$1  =  ₣0.98	Swiss Francs

1. How much does it cost in US Dollars to buy one South African Rand?

2. How much does it cost in Russian Rubles to buy one US Dollar?

3. Suppose you wanted to buy a sculpture, and the price was 2,000 Egyptian Pounds. How much would the sculpture cost in US Dollars?

4. Suppose you wanted to buy a watch, and the price was 50 Swiss Francs. How much would the watch cost in US Dollars?

5. If you planned a vacation to the United Kingdom and wanted to exchange your money before you left, how many British Pounds could you get for $1,000?

6. Why might Canadian business owners try to avoid accepting US money from customers?

 

Part 2: Interpreting Exchange Rates I

Go to the Currency Exchange Table and put in the following information.

Create table in this base currency: United States Dollars – USD

As of: January 1, 2012

Click on the blue arrow on the right.

Under XE Currency Table: USD - US Dollar, click once on Currency Name.

Scroll down until you see Brazilian Real, copy or write down the number in the USD per Unit column. (This is the amount of US dollars and cents required to purchase one Brazilian Real in 2012.)

Click Back in the toolbar.

Replace January 1, 2012 with January 1, 2014.

Click on the blue arrow on the right.

Under XE Currency Table: USD - US Dollar, click once on Currency Name.

Scroll down until you see Brazilian Real, copy or write down the number in the USD per Unit column. (This is the amount of US dollars and cents required to purchase one Brazilian Real in 2014.)

Compare the two numbers.

Answer the following 6 questions in 1-2 complete sentences each. Number your answers.

1. Did the US Dollar appreciated (Did Brazilian currency get less expensive?) or depreciated (Did Brazilian currency get more expensive?) between 2012 and 2014?

2. What effect would an appreciation of the US Dollar have had on the price Americans paid for imports from Brazil in 2014 compared to 2012?

3. Would an appreciation of the US Dollar have led the US to import more or less from Brazil in 2014 compared to 2012?

4. If the US Dollar had appreciated, would the Brazilian Real have appreciated or depreciated in value between 2012 and 2014?

5. What effect would a depreciation of Brazilian currency have had on the price Brazilians paid for imports from the US in 2014 compared to 2012?

6. Would a depreciation of the Brazilian currency have led Brazilians to import more or less from the US in 2014 compared to 2012?

 

Part 3: Interpreting Exchange Rates II

1. Assume the US develops a strong international dollar. Write a paragraph or two about the strong dollar, explaining its effect and the reason for that effect on each of the following.

1. The price of Pakistani rugs

2. The amount of rugs imported from Pakistan

3. US demand for the Pakistani currency, Rupees

4. Importers' profits, such as Pier One Imports

5. The price of US machinery to Pakistani retail firms

6. The amount of US machinery exported to Pakistan

7. Pakistani demand for US Dollars

8. Exporters' profits, such as US machinery producers

9. US balance of trade (trade deficit or trade surplus?)

2. Assume that the US dollar depreciated in value. Write a paragraph or two about the weak dollar, explaining its effect and the reason for that effect on each of the following

1. US imports of foreign products

2. US exports to foreign consumers

3. US balance of trade (trade deficit or trade surplus?)

3. Write a paragraph or two explaining whether each of these people would prefer a strong dollar or a weak dollar and why.

1. A farmer

2. A line worker at an auto plant

3. A gas station owner

4. A banana consumer

4. Write a paragraph or two explaining which is more beneficial for the US: a strong dollar, a weak dollar, both or neither and why.

 

Part 4: A Trip Around The World

An acceptable definition for exchange rate is the method used to calculate the value of one currency compared to another currency. We do this using the following formula.

 

 

 

Let's say, for example, we are in Australia, have spent 1,200 of the Australian currency and would like to know how much that is in US dollars, in other words what the exchange rate is between the two. We simply divide the amount we spent by the value of the foreign currency. By value of the foreign currency, we mean the value of that currency compared to 1 US dollar. In Australian currency, 1 US dollar equals 1.71 Australian dollars, or US$1 = A$1.71.

In our example, then, we divide the amount spent (A$1,200) by the value of the foreign currency (A$1.71) to find out that we've spent US$701.75 in US dollars.

To put your skills to the test, you are going to take a trip around the world. At each of your 10 stops, you will spend a specific amount of the local currency. Your challenge is to find the exchange rate for each of the amounts you spent compared to the US dollar and then calculate a total for your trip.

To accomplish that, you need three items from this page.

1. Use the World Travel Itinerary (below) to find out what countries you visit and how much local currency you spend in each (and on what!).

2. Use the World Travel Exchange Rates chart (below) and the formula discussed above to convert the local currency amounts to US dollars. Use only the exchange rates in this chart for this part of the project. As you know, actual exchange rates change constantly and rather than worry about when the rate you used was current, I've provided you with a list of fixed rates you must use.

3. Use the World Travel Log (below) to record the currency name for each country you visited, the amount you spent at each stop and that same amount in US dollars for each. Once you have converted all 10 amounts into US dollars, record the total amount spent on your trip. (You can select and copy the blank travel log below and paste it into a Word doc to fill it in. If you want a hard copy of the travel log, you may use the link below to open it in a printer-friendly page.)

 

World Travel Itinerary

1^ST STOP: To begin your trip you depart from the DFW Airport and head southwest to visit Mexico's ancient Aztec ruins. Calixtlahuaca near Toluca in Mexico is a well-preserved Aztec archaeological site and was once a thriving city. El Tepozteco is an ancient hilltop shrine to the Aztec deity Tepoztecatl. Teotihuacan was a holy Mesoamerican city built around 400 BC and is one of the country’s oldest archeological sites. Teotihuacan was clearly a city of significant religious importance to its inhabitants and includes looming stepped pyramids, castles - such as the Palace of Quetzalcoatl and the Palace of the Citadel - residential buildings and communal buildings. You're exhausted from exploring the ruins and reward yourself by spending 5,091.00 of Mexico's currency on local artwork. [Click on any picture below to enlarge it.]

Calixtlahuaca	El Tepozteco	Teotihuacan

 

2^ND STOP: You take off again to visit Egypt's Great Pyramid and to see Africa's longest river. You spend 4,233.00 of the currency on camel rides and at the bazaars.

The Pyramids of Giza	The Nile River	A Tired Camel	Egyptian bazaar

 

3^RD STOP: Off again, you fly to Germany to see a Mercedes Benz factory and the site of the 1972 summer Olympics, spending 1,572.00 of the local currency on beer and bratwurst.

Mercedes Benz, Munich	Olympiapark, site of the 1972 Summer Olympics	Biergärten Viktualienmarkt, Munich

 

4^TH STOP:  On a whim, you visit Yerevan, the capital city of Armenia, a mountainous country in the South Caucasus mountains. Legend says Armenia was established here in the Ararat region, on which Noah's Ark is said to have come to rest after the flood, by the great-great-grandson of Noah. While in Armenia, you visit the Etchmiadzin Cathedral (Armenia's Mother Church, traditionally dated 303 AD, is considered the oldest cathedral in the world.) and Khor Virap, an ancient monastery and the perfect place to observe Mount Ararat. Before you leave the country, you spend a full day at Yerevan Vernissage (the arts and crafts market), looking at woodcarvings, antiques, fine lace, hand-knotted wool carpets, obsidian jewelry and ornamental objects, locally-created gold items. and Soviet relics. Before heading for the Zvartnots International Airport, you spend 3,103.00 of Armenia's currency at the Yerevan market.

Yerevan, Armenia	Etchmiadzin Cathedral	Khor Virap Monastery, with Mount Ararat in the background	Yerevan Vernissage (arts and crafts market)	Map showing Yerevan, Armenia

 

5^TH STOP: Despite the US State Department's travel warnings, you decide to make a quick trip to Iraq to see just how bad things are. You make it as far as Mosul and then spend 500.00 of Iraq's currency trying to get back out again.

Map showing Mosul, Iraq	Northern Iraq	Northern Iraq refugee camp	Mosul	Mosul Airport

 

6^TH STOP: From Iraq, you travel to see the Bridge of Continents, in the country that covers two continents. You also visit the city built by Constantine I. There is so much interesting local art and handcraft that you can't decide what to buy and spend 500.00 of Turkey's currency.

Istanbul, Turkey	Bridge of Continents	Grand Bazaar

 

7^TH STOP: With the Cold War ended, it seems safe to visit the Kremlin and Lenin’s tomb. You spend 20,338.00 of Russia's currency on vodka and caviar.

Moscow, Russia	The Kremlin	Lenin's Tomb	A Russian vodka bar

 

8^TH STOP: You wouldn't think of going around the world without seeing China's Forbidden City, Grand Canal and the many rice fields in the countryside. All of that travel costs you 1,733.00 of China's currency.

The Forbidden City, Beijing	The Grand Canal links the Yellow and Yangtze Rivers.	Chinese countryside, rice fields

 

9^TH STOP: Before heading back to the States you can't resist visiting the sites of so many battles fought by a past generation. You spend 500,000.00 of Vietnam's currency traveling throughout the country.

The Citadel, Hue	Tunnel area at Long Phuoc	Da Nang	Ho Chi Minh City	Ho Chi Minh Trail	The Rockpile (Thon Khe Tri)

 

10^TH STOP: On your way home, you decide to stop in our 50^th state for some rest and relaxation at a resort hotel. The resort is too expensive to stay very long, though, and after you spend 2,515.00 of Hawaii's currency you head for DFW again, hoping you'll have enough room in your car to haul all of your purchases from the airport to your home.

Honolulu	Hilton Hawaiian Village Waikiki Beach Resort

 

 

World Travel Exchange Rates

as of December 2015

Country	Currency	Value Equal to 1 US Dollar (rounded)
Angola	kwanza	158.83
Armenia	dram	489.12
Australia	Australian dollar	1.33
Canada	Canadian dollar	1.33
China	renminbi	6.51
Egypt	Egyptian pound	8.95
Falkland Islands	Falkland Island pound	0.70
Germany	euro	0.90
Guatemala	quetzal	7.72
Iceland	krona	126.20
India	rupee	67.19
Iraq	Iraqi dinar	1,106.37
Israel	shekel	3.89
Japan	yen	113.46
Kenya	shilling	101.45
Kuwait	Kuwaiti dinar	0.30
Malaysia	ringgit	4.12
Mexico	peso	17.79
New Zealand	New Zealand dollar	1.50
Norway	krone	8.48
Russia	ruble	69.96
Saudi Arabia	riyal	3.75
Singapore	Singapore dollar	1.38
South Korea	won	1,190.46
Thailand	baht	32.88
Turkey	lira	2.87
United States	US dollar	1.00
Vietnam	dong	22,425.00

 

World Travel Log

Countries You Visit	Name of Country's Currency	Amount Spent In Country Currency	Value Equal to 1 US Dollar (rounded)	Amount Spent In US Dollars
Mexico
Egypt
Germany
Armenia
Iraq
Turkey
Russia
China
Vietnam
Hawaii
Total Amount in US$ Spent On the Trip

World Travel Log [printer-friendly page]

Project Submission Instructions

Once you have completed all four parts of your project, you should have the following things ready to submit. Check your work and make certain you aren't missing anything.

Part 1 – 6 numbered answers

Part 2 – 6 numbered answers in complete sentences

Part 3 – 4-8 paragraphs discussing the 4 topics given

Part 4 – completed World Travel Log

By the deadline shown in the Course Schedule on the main page of your syllabus:

• Send, in order, all 4 parts of your work containing the components requested in the body of one new email to dramyglenn@gmail.com.

• Put only your name and Project at the beginning of your email.

• Be careful to use the correct subject line.

• Late projects will lose one point per day late, including weekends and holidays.

A NOTE OF CAUTION: This is a 20-point assignment ... the detail and comprehensiveness of your response should reflect that additional weight.

Proofread your work for spelling and grammar errors and make corrections where necessary.

Course Evaluation

While the benefit you gain from your courses is ultimately up to you, all faculty members take seriously the responsibility for facilitating student learning. Faculty members desire students’ honest opinions to help improve instruction and to help verify the positive aspects of instruction. Creating online courses is extremely labor-intensive and time-consuming and all online faculty members value thoughtful feedback.

I’ve modified a short face-to-face student evaluation for online student use and strongly encourage you to participate. The answers from each completed evaluation are electronically submitted to a results file that is never publically accessible. Because no login is required to complete the evaluation, it is impossible to identify who completed a specific evaluation. The only information associated with an individual evaluation (as a method of weeding out bogus evaluations) is the date and time it was submitted.

To begin, go to the Student Course Evaluation page and follow the directions. Take care to choose the correct course and semester. Too, remember that your course is an online course and should be compared to other online courses you've taken, not to face-to-face courses. If the course you are evaluating is your first online course, compare it to your realistic expectations of an online course.

The evaluation will be available at the link above two weeks prior to your final exam and will remain available for one week following your final.  The evaluation only takes about 10 minutes to complete but the feedback you provide will be invaluable … I really do use student feedback to help improve my courses!

Final Exam (20 points)

The final exam has 40 multiple-choice questions. Each question is worth one-half point. There is a comprehensive review for the final on the Final Exam Review page, linked off of the main page of the syllabus.

The final exam is an online exam.  You must read the instructions for the final exam before taking it. The instructions are on the main page of your syllabus just below the Course Schedule.

Please note that students taking the final exam online must complete the exam by the deadline shown in the Course Schedule on the main page of the syllabus. The deadline gives you the maximum possible amount of time to take the exam but it allows NO margin of error since grades are due. If you miss that deadline, regardless of the reason, you will not be able to take a make-up exam. I strongly encourage you to take it early rather than risking damage to your grade by waiting until the last minute.