Hi guys, welcome back to Global Business Environment Course 2. We're in module one and this will be part one of that module. Recall that we're asking the question, what is the impact of foreign currency on the global business environment in this particular module. Last time we introduced the idea that when we talk about exchange rates and foreign currency, we're talking about a market. And I showed you this picture of the U.S. dollar. This is actually the franc from the small area of the world called Guinea. And this is you know, a stack of these bills equals one U.S. dollar. A lot of people think, by the way, when they see this that this means that the dollar must be much more highly demanded than this franc from Guinea. Or they look at this picture like this and see these prices and they say, oh, if one U.S. dollar equals 40 or 20 of something that must mean that it's more valuable. Actually one of the things that's really important for me to get across to you in this module is you can't look at the numbers or the denomination of any currency and take anything away from it. We could say that one U.S. dollar equals ten million Japanese yen. And we wouldn't know anything about the value of the yen or the value of the U.S. dollar. Why is that? Think about that for a second. The reason that is, is because we don't know the prices in each of those markets. We don't know the cost of living. We don't know the value of goods and services. And so it's only helpful to think about currencies and exchange rates in the context of, and denominations like $1 equals ten million Japanese yen, in the context of some, prices or some index. Another thing that I like to make very clear in all my classes is when we look at, at a currency like this franc from Guinea and the US dollar, it only makes sense to say one of the currencies is increasing in strength or weakening, et cetera, compared to the other in that context of the two currencies. Sometimes people will say, oh, the U.S. dollar is very strong and that doesn't mean very much because the U.S. dollar might be strong against five other currencies in the world and be very weak against another hundred currencies. And so it's not very helpful to say that a currency is strong or weak. You can only talk about it in terms of one currency and another. And so, how do we, how do we determine this price? What, what factors determine it? well, one thing you need to, remember is the market for foreign currency is driven by demand and supply. Let's talk about demand for a minute. Why and how do we as individuals show our demand for cars? When does that get expressed, you might say. Let me show my picture again of cars. Well, it's when we go into the market and make a purchase. And every day as a lot of individuals make a lot of purchases, that's how the, the price gets determined. Well, in, in many places in the world that have exchange rate systems that allow for for markets to work to some degree, you see the same factors. What I like to emphasize is that the supply and the demand of any currency is determined by us. If I, living in the United States, buy some cheese, at a local market, that was imported from Italy, or I buy a toy at a local store that was made in China, even though I'm paying at my store, my local market in U.S. dollars, I'm demanding with those purchases the foreign currencies of those foreign countries. Even though I never see that transaction take place, somewhere along the way, there are transactions made so that the individuals who were involved in making, assembling, the companies that were involved in exporting that product, get paid in their currency. Because what they want is a currency they can use in their home country. So if I buy that Chinese-made toy, somewhere along the line that toy is involved in transactions that are denoted in the Chinese yuan. And so therefore if I buy more stuff and we all buy more things from China, we're expressing demand for the Chinese yuan. So what we're going to do next time is go through that a little more formally looking at these graphs and try to understand how this market works. And how we express this demand for foreign currency through our purchases of imports and exports and tourism and other things. See you back next time.