19 votes
Accepted

How is it possible that all currency exchange rates are fixed w.r.t. to each other?

International currency markets are highly liquid, with near-instant transfer of knowledge between trading centres. This means that any arbitrage opportunities tend to get resolved within seconds. To ...
410 gone's user avatar
  • 8,168
7 votes
Accepted

Does Russian Ruble strengthening mean the sanctions did not hurt Russian economy?

No, it does not mean that. Currency value just reflects supply and demand for the currency. It is not a measure of how economy is performing. There can sometimes be some correlation between exchange ...
1muflon1's user avatar
  • 56.4k
6 votes

Who is losing in an arbitrage?

Nobody has to loose in an arbitrage. Economic relationships are not necessarily zero-sum (in fact often they will not be zero-sum). For example, if apples in city A are sold for ${\\\$}5$ and apples ...
1muflon1's user avatar
  • 56.4k
5 votes

Who is losing in an arbitrage?

It's important to distinguish between the effects of arbitrage on: a) the direct parties to arbitrage transactions; b) other agents in the markets in which the arbitrage takes place. Suppose ...
Adam Bailey's user avatar
  • 8,369
4 votes
Accepted

Why is the Australian dollar, often viewed by traders as a proxy for the Chinese economy?

China's currency, the yuan (CNY), only partially reflects what goes on in China's economy. It doesn't trade freely; the Chinese government sets an official rate for it every day and only allows it ...
BKay's user avatar
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3 votes
Accepted

Can an appreciating currency lead to inflation?

You are wrong/vague here: the rupee (INR), is appreciating against, say, the USD, it possibly means that there is a high demand for the former. If the rupee becomes more expensive w.r.t. the dollar, ...
Giskard's user avatar
  • 29.5k
3 votes
Accepted

Is it theoretically possible for a singular national currency to exist under a free banking system?

Is it possible for India to have a Free Banking arrangement with one singular national currency? Under free banking you would only end up with single currency if one bank manages to become a monopoly ...
1muflon1's user avatar
  • 56.4k
3 votes

What happened to the Zimbabwe cash dollar after the introduction of Dollarization?

Normally in order to full dollarization to occur there will be some conversion rate at which debt denominated in old currency is converted into new one. For example, according to the World Bank ...
1muflon1's user avatar
  • 56.4k
3 votes

Why is the Australian dollar, often viewed by traders as a proxy for the Chinese economy?

I couldn't read the FT article... but... According to this article here, China imports a lot of raw material from Australia. This means that if Chinese economy is doing well, they import a lot of ...
Art's user avatar
  • 2,784
3 votes
Accepted

Why would a common currency such as the Euro that can't be devalued be incentive for banks to lend money to a country?

When you lend Spain 10 million Deutsche marks, the loan is denominated in a foreign currency: they have to return you 10 million Deutsche Marks (ignoring interest for the moment). But the Spanish earn ...
S Lee's user avatar
  • 46
3 votes
Accepted

Is there a difference between buying a currency and selling the currency to be converted to?

Buy and sell rates are different because the currency vendor wants to make a profit and is also taking some risk with the exchange. It is possible that she cannot unload all the CADs they buy from you ...
Giskard's user avatar
  • 29.5k
3 votes

Where does the euro/dollar rate data prior to 2002 come from?

I could not find a source for the google exchange rate, but my best guess is that it is based on ECU (European Currency Unit). ECU was predecessor of euro set up in 1979. When Euro was set up it ...
1muflon1's user avatar
  • 56.4k
3 votes

Will the value of ruble decrease in the long term if the sanctions against Russia are not lifted?

The exchange rate depends primarily on trade and financial flows and monetary policy. As long Russia will continue to have huge trade surpluses as it has now (see data) and as long as its monetary ...
1muflon1's user avatar
  • 56.4k
3 votes

Will the value of ruble decrease in the long term if the sanctions against Russia are not lifted?

Many of the usual mechanisms that determine exchange rates are not working at the moment. People only buy the ruble if they must, even if ruble interest rates are high. The ruble is "artificially&...
BrsG's user avatar
  • 1,632
2 votes

How does Egypt prevent people from arbitraging their currency?

Used to be capital controls. You could only buy dollars (or any other foreign currency) through official channels at the official favorable rates by providing documentation displaying need for said ...
tvbc's user avatar
  • 114
2 votes

Local vs. foreign currency denomination for Emerging Market Bonds

An EME's government collects taxes in domestic currency. If it issues debt in foreign currency and the domestic currency depreciates, the value of foreign currency-denominated debt increases. For ...
Grada Gukovic's user avatar
2 votes

Search terms to find a menu of currency exchange mechanisms?

The area of research you are looking for is market microstructure, the study of how markets work and the process of price formation. Naturally, this means studying liquidity, information diffusion, ...
kurtosis's user avatar
  • 410
2 votes

Does the exchange rate between 2 currencies NOT account for the cost of living (COL) in their respective countries?

does the exchange rate not account for the cost of living? Yes it does, but only indirectly and among other superseding factors that reflect better the particularities of each economy. Forcing the ...
Iñaki Viggers's user avatar
1 vote

What is meant by "expansionary fiscal policy" and "tight monetary policy" in G. Soros' statement in his book The Alchemy of Finance?

expansionary fiscal policy: Fiscal policy is policy related to government spending, expansionary fiscal policy means government is going tp implement fiscal policies that spend more than previously. ...
1muflon1's user avatar
  • 56.4k
1 vote

Mistake in Wikipedia article on Fixed exchange rate system?

I believe you are right, in that it is partially wrong. Based on my understanding, it is correct that $e$ refers to a dollar appreciation (also intuitive, because dollar demand increased by ...
AKdemy's user avatar
  • 4,122
1 vote

Why did the Iranian Rial peak suddenly on 1 August 2014?

That data is just a spike that should be excluded but google finance has little (to no) incentive to fix data quality issues. For example, CEIC reports that the exchange rate reached an all-time high ...
AKdemy's user avatar
  • 4,122
1 vote

Banking system in countries without their own currency

Q1: For example, do banks in Ecuador and Panamá have accounts/reserves in the US Federal Reserve? A1: No they don't only depository institutions that fall under Federal Reserve Act [FRA] are eligible, ...
csilvia's user avatar
  • 2,735
1 vote

Can an appreciating currency lead to inflation?

" Does that not mean a lot of rupees flowing into circulation in the country?" no. it means other currencies are flowing into the country, eg USD. then locals will go to their banks and ...
Randor's user avatar
  • 182
1 vote

Why does Bimetallism require international cooperation to have a chance at succeeding?

Quoting Wikipedia: Bimetallism[a] is a monetary standard in which the value of the monetary unit is defined as equivalent to certain quantities of two metals, typically gold and silver, creating a ...
user253751's user avatar
1 vote

Relation between foreign currency reserve and exchange rate and others

Quick and easy way is to think of a foreign currency (let's call this USD) as another good with its own demand and supply. Imports and exports When a country imports a lot (assuming it imports from ...
Art's user avatar
  • 2,784
1 vote

Purchasing power of currency abroad

Well in principle you could. Let's suppose there are two countries that do not trade a lot. Then even if their economic growth is relatively similar, we should not expect their exchange rate to be 1:1....
Regio's user avatar
  • 4,188
1 vote
Accepted

Are currencies equilibrating?

There is no economic reason for currencies to do so. There might be psychological reasons, but it seems that is not the case, as (for example) the gap between the Indian rupee and the US dollar has ...
Giskard's user avatar
  • 29.5k
1 vote

Currencies fixed to gold

When it is said that currencies are 'fixed' against each other, they are maintained fixed. The exchange rate will still keep fluctuating, as there is obviously still a supply of and demand for the ...
hrrrrrr5602's user avatar
1 vote

How is it possible that all currency exchange rates are fixed w.r.t. to each other?

What you're describing doesn't work on the open market, where any arbitrage opportunity is scooped up within milliseconds by thousands of trading algorithms. That's because currency markets are ...
Joe's user avatar
  • 150

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