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Implications for an Economy of a Rising Exchange Rate...?Implications for an Economy of a Rising Exchange Rate Introduction This paper attempts to examine the implications for an economy of a rising foreign exchange rate. Foreign exchange rate is defined as the value of a specific currency compared to that of another currency. There are two types of foreign exchange rate, the spot exchange, and the term forward exchange rate. The first is defined as the rate that is currently applicable, while...
10 Pages(2500 words)Essay
Determination of Exchange Rate...of trade and national income in a competitive global economy. The real exchange rate is usually volatile and it keeps varying based on various business environment factors (Ickes, 2004, p. 16). The big fluctuations in the real exchange rates could lead to improved welfare to an economy, though this is not always the case. The real exchange rate could be captured in this equation 1 below: Q = SP*/P where Q is the real exchange rate and S is the nominal exchange rate. P* is the price level in the foreign country while P is the price level...
16 Pages(4000 words)Coursework
Exchange Rate Considerations- DB4...and sustainable economic growth (Mankiw, 2007). Through constant market transactions, the central banks influence the supply of money and this affects other market variables such as short term interest rates and the exchange rate. A stable money supply plays a crucial role in economic growth. Excessive circulation of currency results in inflation while an insufficient circulation of currency makes it more difficult for consumers and firms to obtain credit to finance large purchases and business expansions. Given that the United States, the European Union, and Japan are the world richest economies as at the time of the ranking, Ben Bernanke, Jean-Claude Trichet, and...
2 Pages(500 words)Essay
Exchange Rate Considerations- IP4...of factors that in addition to interest rates also affect the exchange rates for a given currency (Bergen, 2011): 1. Differences in relative inflation rates between countries-As a general rule the country with the lower average inflation rate tends to exhibit a rising currency value. Countries with generally higher inflation rates have a general tendency to see a drop in their currency value. The problem with inflation is that it devalues the currency of a nation lowering the purchasing power of the community. If the inflation rate of a country is 10% the nation after a year later will have a loss in...
5 Pages(1250 words)Essay
Exchange rate diagram..., as the demand for domestic currency decreases, the aggregate demand curve shifts from D0 to D1, causing the exchange rate to rise from e0 to e1. Under the fixed exchange rate regime, however, as the demand for domestic currency decreases from D0 to D1 as a result of the increase in foreign interest, the aggregate supply of domestic currency must also decrease, from S0 to S1, as shown in Figure 4. In this case, the domestic interest rates and prices of tradable goods have to follow those in the economy of the foreign exchange to maintain the fixed exchange rate.
Reference
"Exchange rate." Wikipedia, The Free Encyclopedia. 11 May 2006, 23:59 UTC. 14 May 2006, 16:46 .... 1. As the foreign price level increases, the aggregate demand for...
3 Pages(750 words)Essay
Exchange Rate Risk...Company took out its loan, its choice of a fixed interest rate was an attempt to avoid great interest rate risk, as interest rates were rising. Now that the financial advisor and others believe that the interest rate is falling, howerver, and interest rate swap is beginning to look beneficial. A company uses an interest rate swap when it exchanges its interest rate for that of another party. By swapping interest rates, companies allow themselves some freedom from climbing interest rates. In order to determine whether or not an interest...
5 Pages(1250 words)Assignment
Exchange Rate Regimes...in which expectations concerning the future course of events play a key role. Consequently, exchange rates are very sensitive to the receipt of new information (Swan, 1993, p 67-69).
The large and sustained changes in nominal and real exchange rates were among the most significant developments in the world economy in the 1980s. For example, in the first half of the decade, the US dollar appreciated by about 40 per cent against most other major currencies and then, in the second half of the decade, declined, reversing all the previous appreciation. These changes gave rise to international pressures associated with rapidly changing...
9 Pages(2250 words)Essay
Exchange Rate Policies...Exchange Rate Policies Comparative advantage is the mantra for global trading in current times. Nations try to achieve comparative advantage through various means such as technology, just-in-time logistics and many more. Exchange rate is one of the many ways that country can use to their advantage in global trading (Douma & Schreuder, 2008).
This paper explores how China has used the exchange rate mechanism in maintaining the comparative advantage for its producers and what the U.S. can do to counter it.
China is the largest trading partner of the U.S. and it has successfully managed the exchange rate of...
1 Pages(250 words)Essay
Exchange Rate Risk...Exchange Rate Risk Question Exchange rate risk entails volatility of foreign currency exchange rate in the market that affects firms operating internationally (Madura, 2012). The exchange rate risk affects international firms in three major ways namely transaction exposure, translation exposure, and economic exposure. The translation exposure entails the potential of the consolidated financial statements of a company been affected negatively when assets and revenue from foreign countries are translated to domestic currency (Madura, 2012). The transaction exposure on the other hand entails effect on...
1 Pages(250 words)Assignment
Exchange Rate...Exchange Rate Risk al Affiliation) Introduction Kerr conducts business in the international market. Conducting business in the international market may involve dealing with foreign currencies, which exposes a company to risks associated with the foreign currencies (Jacque & Jacque, 1996). Kerr Inc. will lose money if the exchange rate between the U.S dollar and the Japanese Yen fluctuates negatively during the course of a transaction. In order for Kerr Inc. to mitigate the adverse fluctuations in the foreign exchange market, the company should manage the foreign exchange risk. The company can manage the foreign exchange risk by employing the following measures:
Foreign exchange contracts
Kerr Inc. may reduce its economic exposure... to...
1 Pages(250 words)Assignment