The Philippine Peso—Us Dollar Exchange Rate: the Impact of Strengthening Currency

With the economy constantly changing, we are starting to see drastic changes in our dollar. A countries currency determines their strength in the market and their inflation rate. With a higher inflation rate, they are able to buy more and do more for a cheaper price. To help us better understand the difference between the weak dollar and the strong dollar, we will go in depth with both weak and strong dollars and its advantages and disadvantages, the currency monitor, the causes of the weak and strong dollar, and how it fluctuates and affects operations.

Over the next couple of weeks Mexico’s reserves dropped nearly $4 billion, to $121⁄2 billion. The reasons for renewed pressure on the peso in mid-December are unclear. Banco de Mexico cites several factors,  the negative effects of higher real interest rates on financial intermediaries and debtors,  market worries that the current account deficit would be difficult to finance in 1995,  a breakdown in negotiations with the rebels in Chiapas. It is also possible that leaked rumors of changes in exchange rate policy set off another round of capital flight. In any event, over three days Mexico lost another $1.5 billion in reserves.

As the result of the U.S. dollar appreciating, consumer’s U.S. dollar has more worth compared to other currencies. The foreign exchange rate “is the price of one currency expressed in terms of another currency” (Eiteman, Stonehill, & Moffett, 2016, p. 129). Let us take for example the U.S. dollar and the Mexican peso and define foreign exchange quotes. I recently traveled to Mexico City (September 21) and Puebla (September 23), in both location making foreign exchange transactions. As stated

Examine the connection and the differences between the official exchange rate market controlled by the CADIVI and the permuta. Discuss the states of equilibrium in each of these markets. Central banks intervene in foreign exchange markets in order to achieve a variety of overall economic objectives, such as controlling inflation, maintaining competitiveness or maintaining financial stability. The precise objectives of policy and how they are reflected in foreign exchange market intervention depend on a number of factors, including the stage of a country‟s development, the degree of financial market development and integration, and a country‟s overall vulnerability to shocks. The precise definition of which operations in forex markets

8. How can a central bank peg the value of its currency relative to another currency?

The dollar has been categorized as the reserve currency based on four key factors: the size of the U.S. economy, the amount of available dollar-denominated securities, its “liquidity” or ability to sell quickly, and the depth of the currency at which it can be bought or sold without affecting overall price (Conerly, 2013). The agreement was designed to issue loans to war stricken countries for the purpose of rebuilding infrastructure for those nations. America’s hope was to develop future markets of international trade for the United States.

“Economists define government intervention in the foreign exchange market as the buying or selling of foreign exchange for the purpose of manipulating the exchange rate. “(Case, pg. 398)

There are various factors that influence the exchange rate of a currency, such as: interest rates, current account balance, unemployment rate, gross domestic product, expectations on inflation rate, import and export capability of country, trade relationship of two countries, relative product price etc. In basic understanding these factors affect either demand or supply of currency and therefore exchange rate of currency. For example, if government of China determines the higher interest than USA then demand for Yuan in USA increases because foreign capital in china will increase due to potential higher rate of return on investment and by the law of supply and demand rate of Yuan too rises. Another example is China’s huge export amount which pushes the demand of Yuan in it’s trading partner nations, which is virtually all the world, subsequently leading to higher exchange rate.

A currency appreciates as a result of increased demand for that currency on world markets. Its value in the world market increases. This increase in demand can occur for several reasons which include: When a country's exports are high, the buyers of these exports need its currency to pay for those exports. Also when the country's central bank increases interest rates, people will want that currency to deposit in the banks to earn that higher interest rate. The higher the interest rate the stronger the currency.

• a floating exchange rate, where the market dictates the movements of the exchange rate,

Purpose - The aim of this paper is to address the following question: Should Venezuela unify the dual exchange rate mechanism in favour of a free-floating exchange rate regime?

Supply side policies aim to achieve an outward shift in the LRAS curve by increasing the quantity

Currencies are traded like any commodity and sometimes they are over or undervalued in different countries. If the common exchange rate was used, a distorted picture of comparable living standards would be the result. Therefore, PPP is used to correct the distortions caused by over or undervalued currencies.

A series of controls that were imposed and aimed at stemming the outflow of reserves, simply resulted in a large parallel foreign exchange market and the government was eventually forced to devalue the currency.

The rapid expansion of financial market is due to parity established at Bretton Woods in 1960s this crisis marked the breakdown of the system. An attempt to revive the fixed exchange rates failed, and by March 1973 the major currencies began to float against each other. The speculative pressure force closure of international foreign exchange markets for nearly two weeks, the market reopen on floating rate for major industrial countries. The Jamaica Agreement by IMF further legalizes the floating exchange system and increased the role of US currency in international economy. As a result, gold is demonetize as a reserve asset, the role of US$ in international economy increased thereafter. International financial market factors enable expanding and creation of various instruments