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Questions tagged [exchange-rates]

the price at which one currency may be exchanged for another.

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Exposure of two companies in a transaction involving an FX option

An American company $A$ has sold a manufactured product to a German company $B$, and they agree for the payment of 100,000 EUR in 1 year. What type of exposure does $B$ have? What type of exposure ...
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Expected exchange rate and interest rate

If say the markets expect the home country's currency to appreciate, how will that affect equilibrium output and interest rate? What I think: If they expect home country's currency to appreciate, ...
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Justification for my Random Effects estimation

I need to defend my use of the Random Effects (RE) estimator in my economics project. I've been told in cross validated that the proper place for the question is here. The causal effect of the ...
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Theory of Optimal Currency Areas

Should a country be more inclined or less inclined to join a currency union (common currency) under the following events: a) Increase in the size and frequency of AD shocks to the economy. b)...
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Real exchange rate

I have a doubt: I'm studying about real exchange rates and I'm having some problem with the formula. RER= NER* price ratio What I don't understand is how do you take this price ratio? Which price ...
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How did US supply of Gold become less than foreign claim to gold?

My understanding is that US ran consistent current account deficits in the 60s and 70s, which led to a substantial net outflow of dollars. But, given that each ounce of gold was pegged to $35, how did ...
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Can the USA really have an exchange rate policy?

I'm reading Martin Wolf's book The Shifts And The Shocks, about the global crisis. In it, there's a section where the author claims that the USA cannot not have an exchange rate policy, since all the ...
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Exchange Rate Determination

Most introductory international economics textbooks use the Uncovered Interest Rate Parity condition for deriving bilateral exchange rates. In other words, it is solely interest rate differential ...
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J Curve and DD Schedule in the Short Run (International Finance)

Assume that the J-curve is true. What would the DD curve look like during the early period of the J-curve (where the value effect dominates)? What would the effect of temporary changes in monetary ...
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How does imposing 100 percent cash margin requirement on imports help to stabilize foreign exchange reserves of a country?

My country is facing a critical depreciation of its currency's exchange rate and the central bank has introduced a 100 percent cash margin requirement on a selected set of imports. My main problem is ...
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122 views

real exchange rate appreciation

i find the topic of real exchange rate appreciation / depreciation often not very well explained. even the excerpt below from the following accepted answer on this website is not correct in my ...
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1answer
33 views

What could happen if a country changes their currency rate constantly?

Introduction Imagine this random country. "Yolistan", it is a new country that appeared after a war/revolution/independence/whatever. The currency it's the "Yolo" Yolistan needs to import resources ...
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Emerging Market dollar debt, FX swaps and exchange rate risks

"An FX swap, on the other hand, creates no exchange rate risk for its counterparties. This is because currencies are sold and repurchase at fixed spot and forward rates. In other words, when you sell ...
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What is the reason of devaluation in Turkish Lira?

I guess there is a some fundamental issues in the economy but I wonder the apparent reason of the recent devaluation in Turkish Lira? Does Turkey need to pay debt in very short term? How much is it? ...
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Dornbush model - relationship between i and S

In the Dornbush model, when we separate short and long run equilibrium. This is what I apparently have understood: SR1: an increase in Money Supply ($M_s$) leads to a fall in domestic interest rates (...
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Mechanics of Sterilized Intervention?

I'm looking to see if someone can help improve my understanding of sterilized intervention in FX markets. My intuition/understanding is: Assume that the domestic currency is depreciating, perhaps ...
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1answer
112 views

Can increase of NEER cause higher inflation?

I´m trying to find siutable econometrics model for explaining inflation during financial crisis and after. My final model shows that if NEERnominal effective exchange rate) increases, the inflation ...
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Is there a quantitative model demonstrating the relationship between balance of payments and exchange rate?

According to conventional analysis, a key factor in exchange rate determination is the state of the balance of payments. An increase in imports gives rise to an increase in a demand for foreign ...
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1answer
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Normalise historic values given in different currencies

I have historic monetary values given in different currencies and stemming from different points in time. I want to be able to compare them, and for that all must be given in the same currency, and ...
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1answer
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Real exchange rate of India and United State?

According to OECD the price level of India is 29, and that of united states is 113, and nominal exchange rate is 64-1(INR-$). So what is the real exchange rate? Is it $$RER = NER\times\frac{US_{...
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How is it possible that all currency exchange rates are fixed w.r.t. to each other?

I wondered if it would be beneficial to exchange a currency through one or more "in-between" currencies. For example: instead of trading Russian Ruble (RUB) to Euro's (EUR), one would trade from RUB ...
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Dornbusch Sticky Price (Overshooting) model

Stupid question: What do the phi and lambda from the equations above represent?
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Why is the LM curve vertical in the open economy Mundell Fleming model in the short run?

We assume that the quantity of real money balances demanded is L(r, Y), where r is fixed in the case of a small open economy with perfect capital outflow, Y is income. As a result, e, the exchange ...
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Theoretical market capitalisation of a crypto currency?

Here’s the context. I want to know what the theoretical market capitalisation (say eg $US / Bitcoin times Q the number of coins - it doesn’t have to be Bitcoin) of a crypto currency? Assume that the ...
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Who determines the exchange rate and how?

I have almost no knowledge about economics. However, a question always comes in my mind. How exchange rate really differ? I live in Bangladesh. So how, why, who changing BDT and US Dollar exchange ...
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National Capital Outflow Question

I have the following example for an imposed quota on the importing of Japanese cars to Europe and it's relative effects: I am told that $NX=NCO$ (Net exports are equal to National Capital Outflow). I ...
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1answer
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Solutions for the de-dollarization of the Democratic Republic of Congo

While reading this article, I was wondering about the policies the DRC's government could employ to make the congolese franc appreciate. To appreciate the currency, the DRC by decreased investment in ...
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Under what conditions are tariffs or export subsidies expansionary?

Charles Kindleberger writes in the introduction to /The World in Depression/: The imposition of tariffs should be expansionary for the importing country, if contractive for the countries losing ...
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Data on bilateral real exchange rate

Where can I find bilateral real exchange rates? For example per USD? I can only find real effective exchange rates, but it is an index, not a bilateral rate.
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1answer
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Norway inflation and exchange rates

I am looking at Norway's economy, and I'm trying to make sense of some of the data I see. Norway's economy has a very close relationship to crude oil, and in 2014 crude oil had a massive drop. Looking ...
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1answer
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How can the HKMA peg the Hong Kong dollar at 7.8 HKD/USD for so long?

A lot of pegged exchange rate systems don't stay pegged for so long (e.g. because the central bank run out of reserves to maintain their values) So far I understand that the HKD is 100% backed by the ...
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3answers
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How to estimate long term exchange rate?

I'am looking for a book or paper that explain (in a theoretical and empirical way) how to estimate the long-run exchange rate for a country. Could someone suggest me one?
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In this 3-way currency exchange, who loses, and by how much?

Let's say, hypothetically, we have the following imbalanced exchange rates: 1USD = 1.2EUR 1.2EUR = 1000 JPY 1000 JPY = 1.5 USD Let's say person A starts off with 1 USD, buys 1.2 EUR from B, then ...
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Why imports increase if higher relative inflation?

I'm reviewing a previous AP Macroeconomics exam and I saw the following question: The United States and South Korea are trading partners, and the United States has a zero current account balance. ...
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Is there an accepted metric for “the value of the dollar”?

Is there a reasonably well-established scheme for estimating the value of the dollar in international trade, somehow relating it to the "average" of other currencies or to some currency-independent ...
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Relationship between Fixed exchange rate and balance of trades

I wanna find a relationship between the fixed moroccan exchange rate and balance of trade and some other variables like international reserves , what type of regression should i use ? thanks in ...
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1answer
377 views

Real Exchange Rates calculation

I am struggling with something as simple as real exchange rate calculation! I get the theory: RER = NOM * (P*/P) i.e. nominal exchange rate times price level ratios. Apparently, using CPI (consumer ...
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Can one calculate how much increasing the US federal debt affects the “value” of the dollar?

As I understand it, if the US government runs a deficit then it (for the most part) "pays" for that deficit by "selling" government bonds. This tends to drive up interest rates somewhat, but also, ...
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VAR/VECM Fitted/Predicted values (BEER model)

I am running a BEER model (Behavioral Equilibrium Exchange Rate Model) and using VAR/VECM and Johansen method to estimate the equation. For context, I am looking at the XR of Czech crown and the euro. ...
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Why should UIP hold?

I am aware of the details of Uncovered Interest Parity, namely that the expected depreciation of a currency vs another one should equal the interest rate differential. I am also aware that empirically ...
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What could cause the spike in the Venezuelan unofficial currency exchange?

In November last year the unofficial currency exchange rate in Venezuela skyrocketed. It was only one month later that the government was able to slow the increase rate to “normal” values. The ...
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Do import tariffs tend to increase a country's exchange rate (if so, why)?

From Prof. Stiglitz' Vanity Fair article: How, one might ask, is this possible, given Trump’s rhetoric, his determination to move against China with a 45 percent tariff? There’s a global ...
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How should I adjust data for both inflation and foreign exchange rate?

I’m not sure if this is typically done, but suppose my data point is in 2013 JPY and I want to express in 2016 USD. Do I apply CPI to express data in 2016 JPY, and then apply exchange rate to 2016 USD?...
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1answer
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What is the proof for why border adjustments are exactly offset in theory by currency appreciation?

Why is it true, in theory, that border adjustments are exactly offset by currency appreciation? I've read the colloquial explanations online, but am looking for something more rigorous. For example, ...
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is trading JPY like launching rockets?

Forgive for my vague question, but my impression of JPY pairs is, that the volatility in them is immense and, as such, it is difficult to make mistakes if you buy JPY when it is low and sell when it ...
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What keeps the EUR in check versus CHF?

I'am a newb in economy and currencies, so forgive my naive question. From what I read here and elsewhere, the Swiss are happy when EUR is worth more than CHF. This brings in tourists and they can sell ...
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2answers
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Is there a difference between buying a currency and selling the currency to be converted to?

I'm not an economist. I'm looking to exchange my CAD to EUR. I watched the rates on a exchange office, and I found something strange: ...
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1answer
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Do the stock performances of various companies have a measurable correlation with exchange rate?

For example if the values of big companies in a country decrease, will the value of that country's currency measurably decrease?
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Relationship between changes in Currency against basket of currencies and inflation

Sorry I'm not an economist, but I was wondering if there was a general country by country guide to how inflation there changes with response to a change in the currency's value against a basket of ...
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Interest Rate Differential and Fisher's Interest Rate Parity

The Fisher formula for interest rate parity, as explained here shows that for a given currency pair, the currency with the higher interest rate will depreciate relative to the the currency with the ...