Activity: Foreign Currency and Foreign Exchange

Overview

Many international exchanges of goods and services are facilitated by the exchange of the currencies of the trading countries.  Importers often must obtain the currency of the exporter’s country to purchase the goods to be imported.  Even when they don’t need the actual currency, they must establish a relative value between currencies.  Given the number of countries, currencies, and trading relationships in the world, this is a complicated process.  International monetary markets serve as the mechanism to set the relative values of currencies.  The actual price (or international value) of currencies is set through the interaction of supply and demand in these international currency markets.  Just as in any market many factors can influence either the supply of, or the demand for, a given currency and this will affect the international exchange rate of the currency.

Video Demonstration:

Concepts:

• Exchange rates
• Money
• Markets
• Supply
• Demand

Lesson Description:

This activity provides an opportunity for students to participate in a simulated foreign exchange market.  As they experience the need to exchange currencies to purchase foreign goods, they learn about the difference between the domestic and international values of a currency and how factors of supply and demand work to set international exchange rates.

Time Required:

• One class period

Materials:

• Small bags of M&Ms, Skittles, or similar small, inexpensive candies or equally divisible goods like almonds or peanuts 
• Found in Download & Print
  • Copies of student reading “Foreign Currency and Exchange”
  • 10 – 15 Saudi Arabian Riyals
  • 10-15 Classroom Bucks

This lesson has been modified, for use in Foundation for Teaching Economics materials by Kathy Ratté and Kenneth Leonard, from Foreign Currency And Exchange published in Trees and TVs In The International Marketplace, 1983.  Used by permission.  Office of the Superintendent of Public Instruction, State of Washington.