[MUSIC] So Julie what is your latest forecast for Europe? >> I see inflation rising quickly because of rapid economic growth. Does that mean the European Central Bank is likely to raise interest rates soon? >> Yes, and that's why I'm recommending that we go long the European currency. >> What do you mean by the expression go long? >> To go long is to buy something like a stock or a currency on the speculation that its price will be rising. >> So why didn't you just say that? >> Because it is shorter >> To just say, go long. >> That's pretty funny. >> It won't be funny if the European currency falls instead of rises on Central Bank intervention. >> In our last lesson, we learnt about the nuts and bolts of international trade. And we explored the often dark and nefarious world of tariffs, quotas and other forms of protectionism. >> In that lesson we also learned why the Ricardian model of free trade upon which much of the international system of global trade is based is prone to failure when countries fail to abide by established international laws and the norms of free trade. In this lesson, we are going to move into the world of trade deficits and trade surpluses and illustrate the role that exchange rates play in determining the patterns of trade between nations. The big picture here is this. The topics we will cover in this lesson are some of the most critical for both business executives and investors. [MUSIC] Consider that today, businesses import everything from assemblies, parts, and natural resources for manufacturing, to products for retail sale. At the same time, many businesses depend on thriving export markets for their growth and prosperity. In this world of global trade, it is virtually impossible for a business to function, if its executive team does not have a solid understanding of how movements and exchange rates can affect their business model and prospects. And the best executive teams never stand passively by and ignore exchange rate risk. Instead they often try to hedge or leverage such risk. [MUSIC] Global investors likewise have a major stake in understanding what moves exchange rate and how exchange rate movements can affect the prices of financial assets in various countries. For example, a European investor may take a significant position in the American stock market. And that market may indeed go up. However, if the Dollar's exchange rate falls significantly relative to the Euro, the European investor can actually money on what appears to be a winning stock portfolio when that investor sells the American stocks in Dollars and then converts the Dollars back to Euros. A broader key point is this, what you are about to learn in this lesson is not just really interesting material. It's also essential knowledge for a 21st century of global commerce. So when you're ready, let's get started with the next module. [MUSIC]
