Answer whether the following statements are true or false with a 3-4 line explanation for each: a) There is a strong empirical link between monthly exchange rate changes and lagged interest rate differentials (ie. the theory of Uncovered Interest Rate Parity holds). b) Having a negative current account is always bad.

Answer whether the following statements are true or false with a 3-4 line explanation for each: a) There is a strong empirical link between monthly exchange rate changes and lagged interest rate differentials (ie. the theory of Uncovered Interest Rate Parity holds). b) Having a negative current account is always bad.

Microeconomics

13th Edition

ISBN:9781337617406

Author:Roger A. Arnold

Publisher:Roger A. Arnold

Chapter21: International Finance

Section: Chapter Questions

Problem 4QP

See similar textbooks

Similar questions

Whenever the purchasing power of a Home country's currency is the same in both Home and Foreign, the real exchange rate between Home and Foreign is equal to 1. True False If inflation in the United States is 4% per year and in China it is 8% per year, and interest rate in the China is 10%, then the Fisher effect predicts that the interest rate in the United States is 6%. True False If relative PPP and uncovered interest parity hold,____________________ Absolute PPP must hold. covered interest rate parity must hold. real interest rate parity must hold. anything could happen.
What is the impact of each of the following changes (other variables remaining unchanged) on the real exchange rate. (a) The Consumer Price Index (which measures the price level) in the United States rises by 4 percent. (b) The Consumer Price Index in Jamaica rises by 9 percent. (c) The two Consumer Price Index changes above occur at the same time. (d) The nominal exchange rate moves from 86 to 90 for a U.S. dollar. (e) The nominal exchange rate depreciates by 10 percent at the same time that local inflation is 10 percent and the U.S. price level is stable.
In the monetary small open-economy model, suppose that money supply equals 100. The money demand function takes the form Md=P(0.5Y-400r). The foreign price level P* is 1. The equilibrium output Y is 200 and the world interest rate r* is 0.2.(a) Determine the equilibrium exchange rate.(b) If the country adopts a flexible exchange rate regime, what will be percentage change in the equilibrium exchange rate if money supply goes up by 10%?
State the impact of each of the following changes (other variables remaining unchanged) on the real exchange rate. (a) The Consumer Price Index (which measures the price level) in the United States rises by 4 percent. (b) The Consumer Price Index in Jamaica rises by 9 percent. (c) The two Consumer Price Index changes above occur at the same time. (d) The nominal exchange rate moves from 86 to 90 for a U.S. dollar. (e) The nominal exchange rate depreciates by 10 percent at the same time that local inflation is 10 percent and the U.S. price level is stable
When more than one government intervenes to move the value of an exchange rate, this is known as ________________intervention. Coactive Expansionary Coordinated International
Question 4 State the impact of each of the following changes (other variables remaining unchanged) on the real exchange rate. (d) The nominal exchange rate moves from 86 to 90 for a U.S. dollar. (e) The nominal exchange rate depreciates by 10 percent at the same time that local inflation is 10 percent and the U.S. price level is stable.
Question Three Distinguish between the short run and long run determinants of exchange rate volatility. In your assessment show how the exchange rate movements can influence the Interest Parity Condition. . Consider that a basket of goods in Johannesburg is worth ZAR 5000 (5000 rands) while the same basket of goods is worth K7500 (7500 kwacha) in Zambia. A check for the displayed exchange rates at one of the FnB branches in Lusaka revealed that ZAR1 (1 rand) can be exchanged for K1.16. Based on the foregoing establish the nominal exchange rate and the real exchange rate between the kwacha and the rand. Comment on your estimates in the face of international trade between Zambia and South Africa
State the impact of each of the following changes (other variables remaining unchanged) on the real exchange rate. (d) The nominal exchange rate moves from 86 to 90 for a U.S. dollar. (e) The nominal exchange rate depreciates by 10 percent at the same time that local inflation is 10 percent and the U.S. price level is stable.
Determine the impact of productivity differentials (across tradable and non-tradable sectors) on the real exchange rate and state the main predictions of the Balassa-Samuelson model.
For the above condition to hold, perfe mobility must be assumed and the domestic interest rate must be the foreign interest rate. equal to higher than lower than 2. When a country pegs its exchange rate, an increase in government spending A. the foreign rate. B. the interest rate. C. output. D. all of the above (G) increases: all of the above 3. In an economy with fixed exchange rates that is performing near full output, ______could become an issue that monetary policy would otherwise be able to address in an economy with flexible exchange rates by _____
What are the determinants of real exchange rate? Consider the uncovered interest rate parity condition and explain the effects of all these factors on real exchange rates.
Suppose that at some point the spot exchange rate is equal to 100 yen per one U.S. dollar, while the interest rate in dollars is 6% and the interest rate in yen is 1%. What is the approximate forward rate that is consistent with this situation?