To answer the following question, please refer to the figure below. Concentrating only at the upper right quadrant, discuss the foreign exchange market equilibrium
What will be an ideal response?
The upper right quadrant describes the equilibrium in the foreign exchange market.
We begin with the Interest Parity Condition.
R$ = + ( - )/
In general, two effects are present:
→ and →
A rise in the interest rate normally creates an excess demand for dollar deposits and appreciation in the currency market.
However, in this case the increase is due to higher expected inflation or higher expected monetary growth in the U.S. which implies a faster expected depreciation of the dollar against the euro, , thus, goes up and thus reduced the attractiveness of U.S. deposits.
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If current aggregate expenditure equals current production, an economy is in equilibrium
a. True b. False Indicate whether the statement is true or false
The World Bank estimates that about ____ of the planet lives below $1.90 a day per person, and ____ lives on less than $3.10:
A. 1%; 35%. B. 13%; 50%. C. 35%; 50%. D. 13%; 35%.
Which of the following can a nation use to shift the supply or demand for its currency?
A. Trade policies such as tariffs but not fiscal policy. B. Fiscal, monetary, and trade policies. C. Fiscal policy but not monetary policy. D. Monetary policy but not trade policy.
"More productive workers receive higher wages than less productive workers." This observation is a major flaw in which of the following arguments for protectionism?
A. the infant industry argument B. the national security argument C. the employment argument D. the cheap foreign labor argument