Activity 3
The Global Economy
The World Monetary System

Introduction: One of the services that banks perform in today’s global economy is to facilitate international monetary transfers. These often involve currency exchange. This activity focuses on foreign currency exchange in the global economy. While most people realize that foreign currency exchange rates affect the international traveler, few people understand the direct effects that these rates have on people who may never leave their communities. This activity is designed to make students aware of international monetary transactions, and to show them how the jobs they hold and the purchases they make in their local community are affected by the foreign currency exchange market. Objective: The major goal of this series of activities is to help students understand the notion of simple foreign currency exchange transactions using a foreign currency exchange table, and to make them realize the effect which changes in supply and demand have on the value of the dollar in relation to foreign currencies. Procedures: The progress indicators cited reflect desirable end goals. Teachers should be prepared to use a wide variety of observational, testing and authentic achievement evaluation measures in judging the progress of students. By directly engaging in supportive exercises, students will evidence reasoning and mathematic abilities related to aspects of the monetary system of the world. Both through teacher and peer evaluation of results they will receive immediate feedback as to the accuracy of their responses, and learn how to correct any misapprehensions. Suggested Material: Copies of Handout 3: "Currency Exchange" Transparency of the Currency Chart. Ten or fifteen travel sections from various newspapers (and/or travel brochures with prices). Access to Internet travel pricing sources. Initial Data for Consideration and/or Process: Inflation: This activity deals with the value of the dollar in relation to other currencies, not the value of the dollar in terms of its domestic buying power. It is possible for the dollar’s buying power to be declining (inflation) at the same time that the value of the dollar in relation to other currencies is increasing. Students should not confuse a decline in the value of the dollar in relation to other currencies with the phenomenon of inflation. Currency controls: Most governments attempt to control, to some extent, the fluctuations of their currencies. This can be done indirectly by influencing supply and demand and/or by attempting to fix by decree, rather than through the foreign currency market, the exchange rate for the currency. When the government fixes exchange rates, there usually exists a “parallel market” or a “black market. Currencies: The currencies of most Communist and formerly Communist countries, which are virtually worthless outside the country, are not traded on foreign currency markets. They can only be legally obtained at an official rate, fixed by decree, inside the country. Exercises: This series of exercises will help students begin to understand the monetary system that undergirds international trade. Excercise A demonstrates that each country has its own currency and monetary unit. Updated from "The World Monetary System," New York and the World. New York: The American Forum for Global Education, 1998. View the Handout for this Lesson