Eco Unit 11 Exchange Rates Quiz

Central banks intervene in foreign exchange markets by “influencing the monetary funds transfer rate of a nation’s currency” with the purpose of building reserves, keeping the exchange rate stable, to correct imbalances, to avoid volatility and keep credibility. It implies changing the value of a currency against another one. It creates demand or supply of a currency by buying or selling the country’s currency in the foreign exchange market. (Foreign Exchange Intervention)

All three options directly address problem of the current accounts and financial and capital accounts. While deflation and capital control can remedy both current account and financial and capital accounts, devaluation only has immediate impacts on the current account. (Figure 1 bellow illustrates direct impacts of each option to these accounts.) However, as exchange rates, interest rates, economic growth and balance of payments are interacted, when one components of the balance of payment improves, the other accounts will also recover. For example, when import demand increases, demand for the dollar also increases, and therefore can prevent the outflow of gold from official reserve. That being said, all three options can solve U.S balance of payment problem; however, there must be cost incurred that Kennedy government have to consider.

Which of the following will tend to increase U.S. exports to Mexico and reduce Mexican exports to the U.S.?

B. I read the blog of Will China be the next Gold Fix by (Fiona Sussan) I would respond to this blog, and agree to the author that all of our exports come from China, and their government knows exactly how to make money off of the United States of America. So with her research claiming that China will be the next Gold Fix is truly favored as USA is very dependent on the goods of China produces.

15. If for a country, the quantity of its currency demanded exceeds the quantity supplied, then there is a

We also need to take into consideration that by injecting more money to the economy, it will decrease the exchange rate and as a result it will depreciate the U.S. dollar.

2. The government asks for loans from international banks on credit of the U.S. and the debt must be paid

These two factors, the devaluation of the exchange rate in conjunction with the impending default of

Compared with the domestic supply, the cost of borrowing from the world will lower. So, this country prefer borrow money from the world supply. In conclusion , the money will flow from the lower interest rate country to the higher interest rate country.

lower the value of a nation 's currency by increasing the precautionary demand for money

Among the concerns that were raised during a hearing in Congress was the possibility that foreign governments would stop buying U.S. Treasury bonds, a practice used by governments to prevent their currencies from appreciating against the U.S. dollar. Use the model of supply and demand to describe the Treasury bond market and to predict the direction of quantity and price in this case.

Managing the how goods and services enter or leave this country (import/export) is an important process that allows for us to control the economic status of our nation. Sometimes imposing tariffs on the goods imported balances our labor cost, resources and government supported industry. A tariff by definition is a tax or duty to be paid on a particular class of imports or exports.

2. Different voice raised from some staffers at headquarters, who insisted on dollar funding. They believed that because Semiconductor's business started from USA, they should go along with home currency--USD. The business of the firm is "dollar driven" and can get more benefits, such as low costs, from dollar denominated debt.

Private banks, regardless of where they operate all over the world, also facing similar demands arise from the

Based on your answer to question 2, how would Mesa’s cash flows be affected by the expected exchange rate movements? Explain.