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S E33: Exchange Rates & International Finance - The flow of currencies around the world

Think Like An Economist

CHAPTER

The Supply and Demand Side of Exchange Rates

Supply and demand are lurking in the background here. I figur they're going to turn up at some point. And they're so helpful for thinking about exchange rates. So nows if i'm an american farmer selling my corn to someone in japan, what's happening exactly? Well, you sell your corn for 230 dollars per ton, and so they will need to pay you in dollars. That means your buyer will have to exchange their yen for dollars - which is like saying that they're demanding us dollars on the currency markets. If the price of dollars were really high, then it's going to take more yen to buy the 230 dollars for each ton of American corn. Therefore

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