# Tag Info

7

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, is AAA. I know of no rating agency that issues AAAA+ ratings. The US debt rating is not AAAA+. The most recent ratings from Fitch, Moody's and S&P are AAA, ...

4

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 demand curve. When exchange rate increases demand will be lower because we are moving along given demand curve - but increase in exchange rate does not cause ...

3

Let me explain you in the most simple way how it work behind the scenes... Credit card issuers and payment networks charge cardholders an international transaction fee if the purchase has been made abroad or an overseas bank has to interfere into the transaction process. (it is roughly for about 1 to 3% of the transaction amount, some issuing bank can even ...

2

One possible flaw in your reasoning is your assumption about what happens to bond prices when there are capital inflows. For example , suppose that the Bank of England has fixed short term interest rates at 1%, and that the yield of 5yr gilts is also 1%. Then there is a sudden unexpected rise in the Bank of England rate to 1.5%, resulting in capital ...

2

Dimensional analysis is useful here. $$\text{RER}=1.58\frac{\text{Euro}}{\text{Sterling}}\cdot\frac{110\text{ Euro}}{118\text{ Sterling}}=1.47\frac{\text{Euro}^2}{\text{Sterling}^2}$$ where the unit of measurement is very strange indeed, since the real exchange rate should be a number without a unit of measurement. (Well, technically it is basket of British ...

1

This looks good assuming that your country is a small country (i.e., the change in the domestic demand of foreign assets does not change the interest rate in the foreign country). To be clear on the full story, at point A, we have that the foreigners want domestic assets, and so that's why foreigners demand more domestic currency, and that's why (as you said)...

1

Quote... "Suppose the PBOC buys a bunch of dollar-denominated bonds, using its dollar reserves. All else equal, what effect should this have on the yuan-USD exchange rate?" Quote... " I am having trouble seeing whether or why it might cause the yuan to depreciate". All else is not equal. To return to the original quantity of USD money ...

1

Direct intervention by the U.S. Treasury in the foreign exchange market offers one option for the president. The Treasury would use dollars to buy foreign currency bonds, bidding up the relative prices of foreign currencies and weakening the dollar. Another option is imposing taxes on the foreign purchase of U.S. assets as a way of weakening the dollar ...

1

There's a bunch of things you could look at. Here's a couple: Foreign currency reserves. Does Switzerland have a lot of dollars on hand? If so, there's nothing to worry about, the peg will hold. Switzerland can just buy CHF using dollars, increasing the demand and therefore the price, until the price is back to normal. (CHF is the abbreviation for the Swiss ...

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