explain the determination of exchange rate using the interest parity approach .

Q: Explain why in case of a fixed exchange rate regime temporary and permanent fiscal policy changes do…

A: A fixed exchange refers to when the value of a country's currency is fixed against foreign…

Q: A country with fixed exchange rate can always raise its policy interest rate to curb down…

A: Exchange rate:- Exchange rates between different currencies indicate how strong one currency is…

Q: Explain the law of one price at the perspectives of purchasing power parity and interest rate…

A: The law of one price states that identical goods and services should be sold for identical prices in…

Q: ive recommendation on how to manage exchange rates

A: Fixed exchange rate policy A fixed exchange rate provides stability to a currency. Examples of…

Q: Would a domestic period of very high inflation make it easier or more difficult for a country to…

A: Answer to the question is as follows:

Q: Contrast the effects of having a fixed versus a floating exchange rate for a country’s economy

A: Exchange rate are the currency values which are used by the countries for the purpose of imports…

Q: Explain the impact of no restriction on foreign goods on the real exchange rate.

A: The exchange rate is a metric that defines how many units of domestic currency are required to…

Q: According to the theory of purchasing power parity, in a country with low inflation, a. nominal…

A: Purchasing power parity holds that the value of a good will remain same in different countries for…

Q: Use the exchange rate diagram to illustrate and explain what will happen in each of the following…

A: The level of inflation has a direct impact on the exchange rates between currencies. The country…

Q: Suppose a Japanese car costs 150,000 yen, a similar American car costs $25,000, and a dollar can buy…

A: The measure that depicts the rate of one currency being measured in terms of another currency to…

Q: Elaborate on what is the Purchasing Power Parity theory, clearly indicating the argument it is based…

A: The buying power of a currency refers to the number of things or services that one unit of currency…

Q: Discuss what the interest rate parity (IRP) tells us about forecasting future spot exchange rates.

A: Interest rate parity (IRP) refers to the theory according to which the interest rate differential…

Q: Discuss the strong and weak points of the flexible exchange rate system? What are the strong and…

A: The exchange rate is the rate that is used to exchange one national currency for another.

Q: Please provide an account of the theory of Purchasing Power Parity (PPP) and critically evaluate its…

A: Purchasing Power Parity Purchasing power parity (PPP) is an exchange rate theory and a mechanism of…

Q: Why do nations use a crawling peg exchange rate system? What role does speculation play in this…

A: Exchange Rate System: The exchange rate system is the system in which an exchange rate is determined…

Q: If a £ is cheaper in terms of a foreign currency than the equilibrium exchange rate, a exists at the…

A: If a £ is cheaper in terms of a foreign currency than the equilibrium exchange rate, a…

Q: During the Great Financial crisis of 2008, the risk premium on the swiss franc diminished. What…

A: The 2008 financial crisis can be largely traced to the burst of the housing bubble. The banks have…

Q: Suppose purchasing power parity is true. What happens to the nominal exchange rate if the price of…

A: The exchange rate is the rate at which the currencies are exchanged for one another. The exchange…

Q: If a U.S. dollar purchases 1.2 Euros, and a gallon of milk costs $3 in the U.S. and 5 Euros in Spain…

A: Real Exchange rate is calculated using the formula = Nominal Exchange rate * (Domestic price/foreign…

Q: How does covered interest arbitrage affect the exchange rates

A: By understanding the interest arbitrage and bringing in the interest arbitraging interest rate…

Q: If a Japanese car costs 500,000 yen, a similar American car costs $10,000, and a dollar can buy 100…

A: Exchange rate refers to the amount of domestic currency that required to purchase one unit of…

Q: ch one iS king or (a) Fixed exchange rate (b) Flexible exchange rate c) Both (a) and (b) d) None of…

A: According to the given question the king of the exchange rate is the OPTION(C) IS THE CORRECT ANSWER…

Q: What determines the real exchange rate and what determines the nominal exchange rate in a small open…

A: For the production and consumption of goods, economic agents have derived a barter system. In the…

Q: The gold standard is Answer 1. a type of floating exchange rate system. 2. a type of managed…

A: Under gold standard system, each country link value  of domestic currency to the fix value of the…

Q: In the Mundell–Fleming model with floating exchange rates, explain what happens to aggregate income,…

A: Answer -  Mundell- Fleming model - This is the extension of IS-LM model . Under this model BOP…

Q: Explain the theoretical basis for alternative exchange rate regimes and why these might change over…

A: The four different types of exchange rate regimes that existed over time are:  Fixed Flexible…

Q: Explain how nominal exchange rate affects real exchange rate.

A: The nominal exchange rate can be understood as that how much amount of foreign exchange can be…

Q: What is interest rate parity? Is it a reasonable assumption that interest rate parity holds between…

A: What is interest rate parity? Is it a reasonable assumption that interest rate parity holds between…

Q: Discuss the view that an exchange rate appreciation is always beneficial for an economy.

A: Exchange rate can be defined as the value of currency of a country in terms of the currency of…

Q: One of the theories that is used to explain the exchange rate determination is thepurchasing-power…

A: PPP (purchasing power parity) is used to compare currencies of different countries by taking a…

Q: What is the logic behind the theory of purchasing-power parity? What does purchasing-power parity…

A: The purchasing power parity theory suggest that the exchange rate of the currencies is equal to the…

Q: If the nominal exchange rate rises 5%,domestic inflation is 2% and foreign inflation is 3%,what is…

A: Nominal exchange rate refers to the rate at which a person can trade the currency of one country for…

Q: Explain how the exchange-rate transmission mechanism can strengthen the interest-rate transmission…

A: The Monetary Policy is defined as a policy which is used by the government to control a nations…

Q: Under flexible exchange rate regime, the spot exchange rate a. Is maintained by the monetary…

A: Exchange rate: - the exchange rate is the rate at which the currency of one country can be exchanged…

Q: Using the foreign exchange market (CAD/EURO), suppose price level in Canada is higher compared to…

A: Exchange rate is the rate at which national currencies are exchanged . And exchange rate is…

Q: The theory of purchasing power parity says: Answer a. The real exchange rate is always greater than…

A: In the international market, the exchange of goods and services are relatively more complex than the…

Q: Please help with question D only: What is the impact on the real exchange rate and the trade…

A: The main impacts on the real exchange rate and trade balance due to an increase in interest rates…

Q: Suppose that the country of Gizmovia wants to maintain the exchange rate of its currency, the gizmo,…

A: Exchange market:The Gizmovia country wants to maintain the gizmo exchange rate at $0.5, but the…