Exchange Rates, Trade and Value

Often one of the hardest concepts for students (and teachers) is exchange rates. The idea of paying money for money seems odd. But then it is compounded when we remember that the changing price (the exchange rate) can be affected by supply and/or demand. Once that hurdle is cleared, we then have to try to understand and explain how fluctuating rates impact producers and consumers on both ends of the transaction. It can be confusing, to say the least.

Yesterday's edition of The Wall Street Journal contained two articles that I believe may be helpful - if not for your students, at least for you. Currently, both are subscriber content, but if you use your browser to search for the title, you may be able to find them for free - I did. Although when I used the new links, the subscriber notice popped back up. You might have to poke around, but it's worth it.

The first article, "Value Is in Eye of the Holder," provides a sound explanation of exchange rates, using the recent rise in value of the Canadian dollar against its U.S. counterpart.

The second article, "Wallet Check: It's Pain or Gain," uses a tree farmer in Nova Scotia as the example to help understand how exchange rates can impact the producers and consumers of a seasonal item - Christmas trees.

What I found particularly helpful was the explanation of farmer's position when his revenues are priced in U.S. dollars, but his expenses are priced in Canadian dollars. It might even make for an interesting quiz or test question. You decide.

I hope you find the link. If you do, please share your thoughts on these articles.