International Trade

           Whenever a good or service is produced in one country and sold in another, International trade takes place. If foreigners or tourists want to purchase a good or service in the country they are in, they must first exchange their currency into the local currency.

           The value of a foreign nation's currency in relation to your own currency is called the foreign exchange rate. Exchange rates are listed on the internet and in many major newspapers. These rates signify what 1 US dollar is worth on that particular day. However, rates change daily.

           To determine the rate of exchange, you need to divide the amount need to be paid in local currency over how much of the local currency is one unit of your own currency. For example, if you are in Mexico and need to pay a 500 pesos hotel room. 1 dollar is equal to 10 pesos. Therefore, you will divide 500/10pesos per dollar= $50.

          There are two types of exchange rates called fixed exchange rates and flexible exchange rates. Fixed exchange rates consist in a currency system in which governments try to keep the values of their currencies constant against one another. Flexible exchange rates consist in a currency system that allows the exchange rate to be determined by supply and demand.

Graph below shows the ups and downs the US dollar has had in exchange rate against Canadian dollars.