Questions tagged [foreign-exchange]

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1answer
33 views

The impact of a devaluation of the national currency under a fixed exchange rate system

I would really be thankful if any of you could check my answer to the following question. Question: Describe, using the IS-LM-BP model, the impact of a devaluation of the national currency under a ...
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16 views

Equities-dollar correlation

Equities-dollar correlation was mostly positive in the 2000s and switched to negative since the GFC. Are there any structural drivers explaining this change in correlation?
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1answer
56 views

How does one country peg its currency to another's? [closed]

For example, Belize has pegged its currency to the US dollar at an exchange rate of 2 Belize dollars to 1 US dollar. How does Belize do that?
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2answers
122 views

Why is the supply curve in the foreign-currency exchange market vertical?

In the book 'Economics' by Mankiw and Taylor the demand and supply curves on the foreign-currency exchange market are shown as follows: The supply equals the Net Capital Outflow (NCO). I would have ...
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1answer
18 views

Dynamics of interest rates, exchange rates and bond prices within the UIP

There are already a few questions about the workings of the UIP and the exchange rate. What I have basically taken from those discussions is that one always has to distinguish between the spot rate ...
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1answer
51 views

How does foreign trade work in a planned economy?

I know that in a planned economy all economic processes are ruled by the state and that there are disadvantages such as too much bureaucracy and that sometimes deals are not always met with demand... ...
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1answer
39 views

Is the forex market a form of bartering?

I had this showerthought that the forex market is pretty much currency bartering. The forex market seems to be different from commodity or stock markets in that you exchange one currency for another. ...
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2answers
28 views

Since the US-China Trade Deficit grew, would the USD be valued more now compared to the RMB?

I'm curious to see how broadening or narrowing a trade deficit would affect a currency pair.
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16 views

Increase in Debt / GDP positive or negative for currency?

When a nation-state and/or monetary union increase it's debt to GDP ratio. Is this a net positive or negative for its currency?
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Depreciation of currency shall incentivise or disincentivise the foreign portfolio investors?

I am confused - if suppose currency depreciates then assets will become cheaper and foreign investors will find it enticing to buy these assets so in that case, foreign inflows shall increase In ...
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28 views

Size US Capital Account

I am not able to find the size of the capital account within the balance of payments for the US. Only "net" numbers, does anyone know the size of both sides of this account? They both seam to be ...
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2answers
60 views

Why does an increasing demand for dollars lead to the depreciation of a currency?

I am self studying some slides of a course on monetary economics. The source of the slides is Pilbeam, chapter 11 on the mechanism of the Bretton Woods system. I don't understand the following ...
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1answer
30 views

Why would oil suppliers choose a lower priced contract?

The West Texas Intermediate (WTI) futures contract has ranged from \$6 to \$20 in the last 48 hours. The May Shanghai International futures contract is 205 Yuan (CNY). At 7 CNY per USD, that comes ...
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100 views

How do you read currency exchange rates in terms of domestic and foreign currency?

I am having some issues understanding how to read exchange rates. E is the exchange rate I read online that if we have for example E\$/€, then the base currency in this case is the dollar and the ...
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46 views

Relationship between government expenditure and exchange rate?

I've read an increase in government expenditure can lead to increase the chances of currency crisis but shouldn't it lead to the opposite? Fiscal deficit ----> Govt will undertake borrowings --->...
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1answer
31 views

Do local taxes help in paying back foreign debts?

I always wonder if increasing local taxes could help countries in paying off the foreign debts? I think taxes generate income in local currency. While foreign debts (from IMF, World Bank etc.) are to ...
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3answers
96 views

Why is oil being traded in U.S. dollars?

I am trying to understand the concept of money,forex, depreciation of currency,devaluing,...(just the basic stuff). While I was reading about why oil is being traded in U.S. dollars, on the internet, ...
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1answer
26 views

How does exchange rate change with respect to interests?

If the central bank raises intereat rates, isn't the money supply now less and the exchange rate is greater? I have run into opposite statements and dont know how to approach this problem. Thanks in ...
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1answer
29 views

What prevents a government from issuing debt to finance riskier investments?

Germany has a 10Y bond yield of -0.336%. Meanwhile, Brazil has a 10Y bond yield of 6.415%. Why doesn't the German government issue bonds in order to buy Brazilian bonds? It seems a no-brainer win. ...
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1answer
70 views

Meaning of Exchange rate

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

Forward exchange rates and inflation

Looking at forward rates, the exchange rate for the currency with the higher interest rate gets worse over time. This makes sense or else there would be an arbitrage opportunity to borrow in the low ...
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1answer
59 views

Relation between foreign currency reserve and exchange rate and others

What is the relationship between foreign currency reserve(USD) of a country with it's exchange rate (against USD), and also with export and import strength ? And if it's too complicated to explain, ...
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2answers
126 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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2answers
114 views

How is India able to increase its foreign exchange reserves despite historically running a trade deficit?

Balance of Trade: https://tradingeconomics.com/india/balance-of-trade Foreign Exchange Reserves: https://tradingeconomics.com/india/foreign-exchange-reserves Remittances do help (avg. \$4B/mo) but ...
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1answer
36 views

Monetary Approach to a depreciating currency

I am currently doing some research on the monetary approach to the effects of currency fluctuations on trade balance. It's been a while since I took an int econ class back in the undergrad, so I hope ...
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152 views

Effect of Import Tariff on Supply of Currency on Foreign Exchange Market

I'm struggling with this question below for my macroeconomics course. If Argentina were to impose a tariff on its imports, how will the supply of Argentina's currency and its exchange rate be ...
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1answer
196 views

What negative effects would result from globally fixing currency exchange rates?

Assuming one had the power to enact such a wide-ranging change, what would the negative effects of fixing the exchange rates between all currencies at the current rates, or the mean of the last week/...
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29 views

What is the impact of money “sent” to another country?

I've been thinking about this a lot and I am not sure I have understood correctly. I was thinking about, for example, migrant workers who send a portion of their income back home, or wealthy ...
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43 views

Who looses Forex if someone gains?

My understanding of forex exchange is that when there are two currencies cur1 and cur2, they are balanced in the world with a ...
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1answer
36 views

Why is it a problem if a considerable amount of currency is hoarded by the enemy of the issuing government?

During WWII and after Pearl Harbor, the United States issued the Hawaii overprint notes because they feared the possibility that if the Japanese captured Hawaii they would also control a considerable ...
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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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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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599 views

Can't a country grow its GDP without foreign investment?

Whenever various developing countries around the world talk about growing their economies, they talk about facilitating foreign investments and they put so much emphasis on it as if a country's ...
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1answer
210 views

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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89 views

How would a “one-way” fixed exchange rate backed by destroying foreign currency work?

Note: This question may seem really pointless, but it's actually in the context of a cryptocurrency idea I am developing, but I posed it this way as the question is not really about cryptocurrencies ...
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1answer
217 views

Is it true that the U.S has to run a chronic trade deficit with the rest of the world as a price to pay for being the world's reserve currency?

I have heard of the argument that in order for USD to be reserve currecy, the rest of the world must own enough USD to store it as reserves. In order for the rest of the world to own enough USD, U.S ...
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2answers
73 views

How does domestic demand affect the domestic currency's value

If an economy grows, due to a tax reduction for example, how does that affect the exchange rate? My logic would be that reduced taxes put more money into people's pockets, which they then use to buy ...
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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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2answers
556 views

Abolishing all tariffs without reciprocity

Is a policy of abolishing tariffs without expecting other countries do so a sustainable economic policy? What are the arguments for or against it? Fear of imports is very common among people. Money ...
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3answers
140 views

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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2answers
3k views

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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332 views

How does Russia have so much foreign exchange reserves?

Source Russia is under U.S. sanctions. How does Russia have so much foreign exchange reserves?
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1answer
102 views

Econometrics for currency valuation?

Different assets have different motivations and components for price determination. For example, an equity stock price might be considered to be include the value of underlying company, its potential ...
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1answer
210 views

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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1answer
294 views

What are the limitations that a country faces in increasing its Forex Reserve?

The Forex Reserve of a country remains in the locker of its central bank and does not earn any interest for that country. What are the measures that the central bank of a country can take to overcome ...
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1answer
884 views

Exchange rate and domestic money supply

It seems an obvious fact (not explained by authors but stated) that when a Central Bank purchases foreign currency (to stabilise its own), the domestic money supply goes up. It seems to me that the ...
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3answers
678 views

How is the rest of the world making the US an interest free loan by holding US currency?

In the book "Macroeconomics" by Olivier Blanchard & David R. Johnson, the following appears: In yet other countries, people who have emigrated to the United States bring home U.S. ...
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2answers
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PPP / currency evaluation

An economics book has the following example: In the USA, a Big Mac sells for 1 USD, while in Germany it sells for 3 EUR. The "fair" FX relation would therefore be 1 USD = 3 EUR. At the FX market, ...
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1answer
1k views

Misleading vertical axis in foreign exchange graphs analyses?

The market for a currency typically has the y axis labelled as (currency1/currency2) where currency1 is the currency in which the demand and supply is for. If this is the case, wouldn't it mean that a ...
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Why would increased inflation increase the value of the dollar and bond yields?

I was reading this Fortune article (http://fortune.com/2016/11/14/donald-trump-victory-dollar-inflation/) and came across this confusing quote: "'Clearly the market has settled on a 'buy dollar' ...