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, ...


3

It will vary in value because trust in it will fluctuate just as trust in facebook fluctuates. There will also be volatility as trust varies in confidence in the payment system; its integrity and security; how exchangeable it is; its exposure to fraud, to tax, to money-laundering investigations For holders, there is also significant counter-party risk in ...


3

Indeed the bid and ask spread is very real. The liquidity taker cannot buy and sell at the same price. The market maker extracts a "liquidity premium" for providing liquidity. When you buy with a market order, you pay the ask price. When you sell with a market order, you get the offer price. (OTOH, what you mean by "real rate" is not at all clear.) So, in ...


2

It doesn't seem to me that there were any substantive differences between the Bretton Woods regime and the gold standard, as seen in the early 1970s Note that most of what I'm about to write is summarized from Wikipedia. The gold standard of some form has always existed in the US since the Coinage Act of 1792 with a few interruptions. In 1934, gold was ...


2

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 example 1 000 000 000 USD is due at some date. If the exchange rate is 1 peso per dollar the government has to collect 1 000 000 000 pesos to pay it off. If the ...


2

Yes, bid/offer prices are what are directly observed. But that does not mean too much. In a liquid market, market participants have a target mid rate, and bid/offer prices are as spreads off mid. The bid/offer spread is normally set by convention, and is normally low during stable market conditions. This means that if you do a sequence of transactions, you ...


2

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 and rejoin it without rejoining the Eurozone; it is so far out there that I doubt you can find any serious economic analysis of it. A few other scenarios have ...


2

This is hard to define because in general in economics the definition of overvaluation of currency is very vague. In economics overvaluation or undervaluation would be a deviation from a person’s expectation of purchasing power parity (PPP) should be (see the textbook Money, Banking and Financial markets from Schoenholtz). So technically if you think that 1 ...


2

There are many methods to forecast exchange rates- look at the series of influential papers by Meese and Rogoff for a primer (https://scholar.harvard.edu/files/rogoff/files/51_jie1983.pdf). To answer your particular question- what you describe seems to be driven by multicollinearity. For instance, returns on stocks will be correlated with the inflation ...


1

According to the table from this website, these are countries that peg their currencies to the Euro: Bosnia and Herzegovina Bulgaria Comoros Denmark Sao Tome and Principe Other than these, Bhutan fixes their exchange rate to the Indian rupee, Lesotho and Namibia fix their exchange rates to the South African rand.


1

Let $P$ denote the price in the home country, $E$ represent units of domestic currency used to buy one unit of foreign currency, and $P^{*}$ represent the price level in the foreign country. Now, PPP implies that: $$ P=EP^{*} $$ In other words, prices when expressed in the same currency are equalized across countries. Log-differentiate and take changes and ...


1

NEER stands for nominal effective exchange rate and not the Swiss local currency. Essentially, this takes into account how the local currency moves with respect to its trading partners. Example: if Switzerland trades only with the UK, an appreciation of the Swiss franc compared to USD would not make a difference to exporters/importers in Switzerland if GBP ...


1

How long can I – coming from country X – live in country Y by spending my last monthly salary converted by nominal exchange rate: 1 as a backpacker or as a convenience tourist? 2 adapting to the other country's standards which may be lower? 3 adapting to higher standards than I am used to? 4 How much does this period deviate from a month? My ...


1

This is tricky to answer precisely because governments vary a lot in the services they extent to visitors. There is also variation in the mix of consumption goods across countries as well as their relative prices. You might respond to local conditions by changing your consumption bundle more or less than the average person and that would change the economics ...


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

In recent times, capital markets have been looking to central banks to bail them out if they get into trouble. So if confidence is lost that they cannot, well, yes that can trigger a crash that may lead to a complete no confidence in a particular currency and thereby the loss of its purchasing power. But losing faith in central banks is not the only risk ...


1

Both answers here are giving really good definitions of the concepts, but I think it's important to additionally talk about the relation between the two to clarify the justified confusion and to compare them. tl;dr RER is combining PPP theory with the current exchange rate to produce a rate that is taking purchase power into account. Read the two last ...


Only top voted, non community-wiki answers of a minimum length are eligible