Questions tagged [exchange-rates]

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

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8
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1answer
156 views

How does a bank convert one currency to another?

Say for example I sell ZAR and buy USD. What happens behind the scenes so that the local ZAR bank is able to deposit USD into my account? Does the bank require some sort of USD cash reserve? How do ...
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39 views

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 ...
3
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81 views

Currency Peg or Currency Substitution/Dollarize?

Why would a sovereign state choose an exchange rate peg over the demonetization of the local currency, replaced by hard currency? In the case of the West and Central African CFA Francs, France has an ...
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0answers
32 views

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 (...
2
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0answers
36 views

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, ...
2
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0answers
199 views

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 ...
2
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0answers
33 views

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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42 views

Adjusting reported costs figures

What would be the correct procedure to adjust costs figures to make them comparable? For example, I find two papers that report the cost of similar pesticides in a developing country. One reports ...
2
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63 views

What will happen if Chinese yuan turn floating exchange rate system?

The excange of Chinese yuan is controled by Chinese government in part now. What will happen if Chinese yuan turn floating exchange rate system?
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38 views

Why is the New Zealand dollar on parity with the Australian dollar?

The New Zealand dollar has reached parity with the Australian dollar for the first time in more than forty years. The question is - what are the economic factors that have caused this?
1
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1answer
21 views

How to calculate PPP$ from LCUs?

Is there one single formula which allows to calculate the income of a person in PPP\$ from her income in LCUs (local currency units), given for example the PPP conversion factor, GDP (LCU per ...
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0answers
18 views

Meaning of PPP conversion factors

How do I interpret the numbers of this table PPP conversion factor, GDP (LCU per international $) as published by the World Bank: First of all, it's just numbers, but what do they tell (in common ...
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0answers
31 views

What is the difference between conditional and unconditional risk premia?

This is an asset pricing question. What is the difference between conditional and unconditional risk premia? Here's the context: The fact that carry trade strategies typically earn positive average ...
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0answers
99 views

What does an increase in REER signify?

What does an increase in the real effective exchange rate signify? I read from a news report that (localized for India): Furthermore, REER is calculated in such a way that an increase in its ...
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27 views

The Crisis of Argentina

newbie here. Q1 - What needs to be done by the Argentinian government for their currency to regain back its strength? Q2 - Why has the Argentine Peso depreciated against the U.S Dollar for more than ...
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17 views

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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107 views

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 ...
1
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0answers
30 views

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 ...
1
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0answers
78 views

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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0answers
160 views

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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0answers
93 views

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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0answers
28 views

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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0answers
45 views

Who loses/wins in exchange rate fluctuations?

I recently joined Amazon prime unknowingly and USD99 was debited on my non-USA credit card for an annual membership. I canceled the membership and was refunded USD99 after two days. Due to exchange ...
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0answers
71 views

What will happen to property prices if local currency weakens against USD?

Say that the conversion rate of a local currency changes so that the currency is now relatively weaker against foreign currencies and as a result the inflation rate increases and as a result of that ...
1
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1answer
433 views

Short term and long term price elasticity of currencies

If I have 1% of the world supply of US dollars, and I decide to sell all of them to buy Euros, how much should I expect the exchange rate to change? Is there some kind of empirically determined price ...
1
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1answer
77 views

Did the dollar depreciate when Trump won the election?

I expected the the dollar to briefly depreciate against all currencies when Trump won the election (in 2016), but I have just learned that it briefly appreciated against some. It depreciated against ...
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15 views

Calculate profit when trading between more than two goods

When trading two goods (or currencies) it is relatively easy to say if you are making profit when you know the exchange rates. For example Person A trades Bananas for Person B's Apples. Person A gives ...
0
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1answer
17 views

Depreciation of local currency and its effect on prices

I have problem with an article Lee H., C. Park, 2013, International Transmission of Food Prices and Volatilities: A Panel Analysis. Authors wrote: Difference in log of exchange rates (LOC/ $)- As ...
0
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1answer
24 views

echange rate from LOC/EUR to EUR

I have import values in LOCEUR (LOC is local currency). How can I obtain these values only in EUR? My data are from Eurostat, where external trade indicator is "Exports in million of ECU/EURO"
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37 views

Purchasing Power Parity and Baskets of Goods

On the exact definition and understanding of "purchasing power parity" it depends what it means when the World Bank defines the “extremely poor” people of the world as those who are currently ...
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31 views

What strategies can the president employ to deflate the dollar

United States president Donald Trump has publicly declared a desire to deflate the value of the dollar. I have read in news reports that he has asked aids to find ways to decrease the dollar's ...
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1answer
24 views

Local vs. foreign currency denomination for Emerging Market Bonds

For emerging market governments, why is it safer to issue bonds in local currencies than in foreign currencies to raise money? Given that both are invested in by foreign investors, couldn't both ...
0
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1answer
43 views

How does interest rate impact exchange rate?

When I’m using the forward exchange rate formula based on non-arbitrage theory, it tells me that a positive interest rate spread (i_domestic > i_foreign)would cause the forward exchange rate(units of ...
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0answers
11 views

What counts as a “dollar shortage” and how do we know which countries have one?

I recently read an article claiming that China is worried about a possible "dollar shortage," which is news to me. When does this happen, has it happened before, and how do we know which countries ...
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21 views

How the Balassa-Samuelson affect real exchange rate?

According to standard Balassa-Samuelson effect, when the productivity increases in the tradable sector (GDP), price increase can be observed in non-tradable sector and this can lead to appreciation of ...
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0answers
4 views

Why would QE tapering depreciate a foreign, volatile currency?

I'm busy reading the overview in The Oxford Companion to the Economics of South Africa (written in 2014), and on page 11 it says The rand is expected to remain volatile and face depreciation risk ...
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26 views

Uncovered Interest Rate Parity Assumptions (UIRP)

When learning about UIRP i have naturally come across the assumptions under which it may hold. However i am having trouble understanding the role of these assumptions and what the actual consequences ...
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13 views

Exchange rate target zone 45 degree line in the free float case - Krugman Target Zones

As far as i understand in the Krugman target zone model the following equation describes the behaviour of the exchange rate within and outside a target zone $s_t = f_t + \alpha E_t(ds_t/dt)$. But if ...
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0answers
23 views

In an unsterilized purchase of dollars and sale of foreign assets, why doesn't the supply of dollar assets fall?

From Mishkin (2016, p. 500): Explanation of what the supply curve here is, from p. 478: The quantity of dollar assets supplied is primarily the quantity of bank deposits, bonds, and equities in ...
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0answers
11 views

Nominal GDP to Current purchasing power parity

Hi I would like to convert nominal GDP in current US dollars to current purchasing power parity in 2011 US dollars. Is this nominal GDP already converted? if GDP were in LCU I would convert it to ...
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0answers
21 views

A quick math question for NX curve

My text book says as if this $NX$ and $S-I$ graph can explain everything, like even when the economy experiences trade deficit. But shouldn't $S-I$ be a minus value when it's in a deficit? Then how ...
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6 views

Deficit adjustment - role of exchange rates

Krugman states the following: Suppose the world economy is in equilibrium. Suddenly the dollar depreciates for some reason. Almost all economists would agree that long run effect would be some ...
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0answers
11 views

Investor sentiments in large open economy under Mundell Fleming Model

So I have been studying the Mundell Fleming Model, I fail to understand the impact of investment sentiments in a large open economy. This is what I think : Positive investment sentiments will ...
0
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1answer
148 views

Balance of payments and the free floating exchange rate system

I am a beginner economics student and recently, I have been learning about how balance of payments surpluses are important for a country to control the value of its currency using its accumulated ...
0
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1answer
55 views

why doesn't every country scale up the prices to the international level?

I live in an Asian country in which the average monthly salary is maybe 300-400 dollars but things (apart from exported goods like laptops or smartphones) are reasonably cheap compared to their price ...
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0answers
14 views

Two deflator series with different base year to proxy real exchange rate

I'm conducting a research in which the real exchange rate serves as a variable. A quick literature review shows that we can use the product of the nominal exchange rate and the ratio between the US ...
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0answers
8 views

gdp growth outliers reflect exchange rate variations

I have nominal GDP for 20 countries and I need it in dollars. I noticed that some observations like Belgium 1986 are havily influenced by exchange rate variations so that we have real GDP growth of 45%...
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1answer
42 views

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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1answer
35 views

Meaning of Exchange rate

Does exchange rate of local currency relative to US dollar mean LOC/USD or USD/LOC ?