19 votes
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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 ...
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  • 7,992
14 votes

Real Exchange Rate vs PPP rate

There are several exchange rate concepts that need to be distinguished. There are bilateral and multilateral (aka "effective") exchange rates, nominal and real exchange rates, and market-price versus ...
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  • 420
13 votes
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What would happen if the world switched to a single currency?

The Euro was always conceived by most Economists as a political goal, not an economic one. Prologue: There is the theory of Optimum Currency Areas (OCA) which characterizes properties that a larger ...
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12 votes
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How does a country devalue its currency?

Typically, a devaluation is achieved by selling the domestic currency in the foreign exchange market and buying other currencies. Suppose China sells one trillion Renminbi and buys 157 billion US ...
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9 votes

How does US (its economy, banks, industry) profit from dollar being the "standard currency"?

Some major benefits include: Seigniorage on currency acts as a source of government revenue, allowing for lower taxes and higher spending. One paper (Neumann (1992)) puts this at about \$15 billion a ...
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8 votes

Real Exchange Rate vs PPP rate

Effectively RER is calculated by converting currency from Country A to country B first, than purchasing the same goods in Country B, whereas PPP is the ratio of the price of goods in each country. ...
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8 votes

How can the Swiss exchange rate be very biased in a free market?

Swiss people do shop outside of their border, exactly as you think they should: "Even the Swiss are staying away from their local stores and products—they would rather buy from neighbouring ...
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8 votes

Who determines the exchange rate and how?

Technically you are changing the BDT/USD exchange rate, or at least you're changing one of the reasons. If supply/demand changes, the value of a particular currency is going to change as well. But ...
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  • 1,206
8 votes
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Why does Russian ruble conversion rate to USD remains constant at 1 to 0.01?

Currently there are quite a few restrictions on US to Russia bank operations. The answer is that Google Finance gets its data for the exchange rates from a specific service, Morningstar, who are ...
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8 votes

What are the reasons for Russian Ruble to strengthen in the past few days?

It’s likely combination of several factors. Some of it it’s because Russia has instituted capital controls (see Reuters). That means that Russians are limited or in some cases even prevented from ...
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7 votes

Should Finland leave the eurozone?

The closest we can get to an answer would be by looking at previous exits from currency unions. Rose published a paper studying extensively all exits after WWII. The abstract resumes well the ...
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  • 1,246
6 votes

Should Finland leave the eurozone?

(I guess a long answer can be fitting to a long question...) The current state of knowledge as to "how to run a socioeconomic area (SEA)" could be grossly summarized as follows: There is a ...
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6 votes
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How can the HKMA peg the Hong Kong dollar at 7.8 HKD/USD for so long?

To maintain the currency peg, the Hong Kong Monetary Authority (HKMA) has to buy HKD and sell USD when the currency comes under depreciation pressure and sell HKD and buy USD when the currency comes ...
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  • 1,047
6 votes

Why is the US rating AAAA+ after they printed trillions of dollars out of thin air, and bailed out the US stock market?

First of all let's get our facts straight as it is not proper to argue based on incorrect premises. The maximum ranking possible, used by conventional internationally respected debt ranking agencies, ...
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6 votes
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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 ...
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5 votes

Interest rate parity: Counter intuitive

In your last paragraph you write "high interest rate in Country A". There is no such thing. There is higher interest rate, per some given criterion. Say higher than historical average. In out case, it ...
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5 votes
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Which currency is preferred when countries with different currencies purchase imports/sell exports?

There isn't a typical answer. The vendor may want paying in whatever currency represents the highest proportion of their costs, as this reduces their currency risk. But there may also be ...
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4 votes
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Why was Swiss National Bank in red by keeping fix exchange rate to Euro?

From a central bank's point of view, printing money isn't free. Each 1 CHF created costs exactly 1 CHF - that is, it appears on the bank's balance sheet as a liability. They owe that 1 CHF to ...
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  • 1,428
4 votes

Why did the Swiss National Bank abandon its currency peg so suddenly?

Just to synthesize the other two answers together a bit and "join-the-dots". Setting the Scene Since 2011 SNB had decided that it wanted to prevent the CHF from strengthening past 1.2 CHF per EUR. ...
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  • 1,428
4 votes
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Currency Devaluation and the causes of the Tequila Crisis

The Mexican government has a complicated history of currency intervention, which can be read about in a detailed timeline here. However, in 1994 the devaluation was caused by the end of government ...
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4 votes
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Why is the Argentine Peso still so expensive?

Buying and selling of currencies in Argentina is currently strongly controlled by the government: http://www.reuters.com/article/2015/02/09/argentina-imports-idUSL5N0VJ4I520150209 This means that you ...
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  • 26k
4 votes
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Question on real exchange rate

Note that I am not 100% sure. But in my understanding, we have Year 1 Price for a product in the US : $p_{US}=v$ \$ Exchange rate: $x$ pesos for $1$\$ Price of the product in the Philipines: $p_{...
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4 votes

What are the differences between the older gold standard and the current fiat money standard?

The gold standard in the US was actually kind of complicated. You had the government issuing notes off of gold, and private banks issuing bank notes off of gold...but also banks issuing notes/...
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4 votes
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Why currency purchasing power is linked to confidence in central banks

TL;DR Version: The trust that money has value gives it its value. If money can be exchanged for gold, then this makes people trust that it will have value. If this is not the case (and it is not, ...
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  • 5,394
4 votes
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Do import tariffs tend to increase a country's exchange rate (if so, why)?

Suppose that there is no 45 percent tariff and the market is in some kind of equilibrium. That is the demand for yuans equals the supply of yuans at the current exchange rate. Now assume Trump does ...
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4 votes

Theoretical market capitalisation of a crypto currency?

As there is no practical limit on the number of cryptocurrencies that can be created, and as no one crpytocurrency has a unique advantage over any other, and as no cryptocurrencies are legal tender ...
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  • 7,992
4 votes
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Demand Curve of Foreign Exchange

At market both price (in this case exchange rate) and quantity are endogenous ('dependent') variables. You are confusing two completely distinct phenomena. Movement along demand curve and shifts in ...
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  • 41.5k
4 votes

What does the price of bitcoin per ounce of gold tell us?

It's BTC per Oz gold which shows how many btc you need to pay for 1oz. To compute this, you need to know the price (and both are quoted in USD). It still tells you a lot about the purchasing power. A ...
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3 votes

Should Finland leave the eurozone?

In the present legal environment it's not possible for a country to exit just the Eurozone voluntarily, by itself. The only sure way is the complicated scenario in which a country would leave the EU ...
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  • 3,730
3 votes

What would happen if the world switched to a single currency?

After a period of time they would switch back. Why? The monetary systems of each country are based on fractional reserve banking, which creates a leveraged relationship between currency and deposits ...
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