Assignment Example

Download file to see previous pages... A dollar can be strong or it can be weak. A strong dollar helps the export sector of countries around the world. A strong dollar is good when inflation is not a problem. Conversely, a weaker currency increases the purchasing power of the Americans. A strong dollar is a disadvantage to the policy makers. However the US benefits from a strong dollar because it does not depend on exports. The countries whose economies are not strong as compared to the US lose when the dollar becomes strong. This means that their currency is losing value.
In conclusion, a floating exchange rate is the exchange rate where the currency is set by the forces of demand and supply. These forces are in the foreign exchange market. The floating exchange rate change freely and are determined in the forex market. There is a managed float currency exchange system. This system unlike the later is subject to interventions by the monetary authorities. It is not dependent on the forces of demand and supply. The government may have set objectives that it wants to achieve and it interferes with the forces of demand and supply in the managed float currency exchange system. (Devereux, ...Download file to see next pagesRead More