In this video Heimler explains the exchange rate for currency in the foreign exchange market.The exchange rate explains why in a country’s balance of payments account the sum of the financial account and the current account must equal zero.

As an example we look at the exchange rate between U.S. dollars and Euros. The exchange rate can be graphed in terms of supply and demand for currency. When the dollar appreciates, less dollars are demanded on the foreign exchange market. When the dollar depreciates, more dollars are demanded on the foreign exchange market.

Additionally, we consider the purchasing power parity, in which economists value different currencies by measuring the cost of a market basket of goods in different countries.

All of this corresponds to the AP Macroeconomics Unit 7 portion of the College Board curriculum. Don’t worry, it’s more fun than getting your stomach pumped.
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