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
6 votes
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How does the russian interest rate raise will defends the Ruble from devaluation?

An interest rate is the return that a lender earns on money lent to someone else. If the interest rate is higher then it makes lending money more attractive because the return is higher. In ...
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  • 16.6k
5 votes
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Can't a country grow its GDP without foreign investment?

No, you can definitely grow GDP without foreign investment or even trade. There are 3 basic ways to grow GDP. One is increasing human capital, which includes increasing population as well as ...
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4 votes
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How is the rest of the world making the US an interest free loan by holding US currency?

Think about what a loan is in terms of purchasing power. You give a bank your signature on a loan contract and they give you something that will allow you to buy real stuff (houses, cars, whatever). ...
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  • 806
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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Why doesn't Russia buy USD to pay its external debt and avoid default?

Because Russia is effectively banned from using dollars. Also, Russia has enough dollars to finance its debt. The reason why Russia might default is that they are not allowed to use their USDs. For ...
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  • 41k
3 votes

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

Is the only benefit to fluctuating currency rates that it means some people make a lot of money by trading currencies, with zero appreciable benefit to humanity at large ? No. The main benefit of ...
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  • 3,730
3 votes
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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?

This is an excellent question and I will do my best to give you a well thought out answer. Many observers believe the U.S. dollar (USD) will lose its status as the world's reserve currency. In fact, ...
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  • 456
3 votes

Russian ruble drop in value due to low oil prices

The Rouble depreciates against the US dollar because of demand and supply. Think of it as a story that goes as follows: a) In the ruble/dollar market, the supply of dollars consists of foreigners ...
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  • 2,590
3 votes

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

why would they force to trade in U.S. dollars instead of just taking the oil from their country by force? One of the basic tenets of power is that $control$ is superior to $ownership$. War is ...
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  • 1,798
3 votes
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Is the forex market a form of bartering?

No by definition forex is not bartering. By definition (see here) bartering is Barter is an act of trading goods or services between two or more parties without the use of money (or a monetary medium ...
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  • 41k
3 votes
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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, ...
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  • 26k
2 votes
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Misleading vertical axis in foreign exchange graphs analyses?

The convention in finance is that any currency pair "currency1/currency2" is to be interpreted as the number of units of currency2 needed to buy one unit of currency1, or alternatively, as the number ...
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  • 8,437
2 votes

What physically happens when foreign currency reserves change?

Typically foreign reserves will just be assets denominated in a foreign currency, most importantly government debt. Another popular reserve asset are IMF special drawing rights, which are convertible ...
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  • 961
2 votes

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

U.S. federal financial liabilities consist of currency, reserves at the Fed, bonds, and bills. Bonds and bills do not pay interest, currency does not. For reserves at the Fed, excess reserves need to ...
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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 ...
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  • 106
2 votes
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Who determines the exchange rate and how?

In many ways, it's no different to how any other price is set - by supply and demand. The only thing is, that because it's a transaction of money for money, there's some symmetry at play. When you ...
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  • 7,992
2 votes

Abolishing all tariffs without reciprocity

You get cheaper access to inputs. For a large advanced economy that is relatively diversified, it is possible that unilateral tariff reductions across many or all sectors can be good for the economy ...
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  • 636
2 votes
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Theoretical market capitalisation of a crypto currency?

Unfortunately, those who are riding the current trend do not have a clue about what they are doing. I guess, they don't even think of hypothetical situations you've given above to legitimise ...
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  • 1,950
2 votes

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

I'll try to answer your question as best as I understand it. There are innumerable reasons for why taking oil by force from these nations would be seen as unnecessary by the US, for both political ...
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  • 21
2 votes
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Do local taxes help in paying back foreign debts?

If you actually raise local tax it would help you can just convert the money raised with local tax into the currency in which the debt is. For example, if UK has some debt in Euros they can raise ...
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  • 41k
2 votes

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

I am by no means an expert in monetary policy, but this is how I understand it. An increasing demand for dollars implies that more people want to trade the local currency for dollars. The supply of ...
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  • 56
2 votes

How does foreign trade work in a planned economy?

The trade in itself was not that much different per se but it was restricted and overseen by the government. For example, USSR was net oil exporter and most of its oil was sold for US dollars at ...
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  • 41k
2 votes
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Dynamics of interest rates, exchange rates and bond prices within the UIP

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 ...
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  • 619
1 vote
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How is India able to increase its foreign exchange reserves despite historically running a trade deficit?

The central bank's accounts are not the same as entire country's accounts. The foreign currency reserves statistic comes from the Reserve Bank of India, the central bank, when it discloses its ...
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  • 934
1 vote

Monetary Approach to a depreciating currency

Let us call the country with the trade deficit, country A, which is our domestic country. If a country builds up a trade deficit, it is selling less goods to other countries than it buys from them. To ...
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  • 5,394
1 vote
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Who looses Forex if someone gains?

The foreign exchange market is a huge over-the-counter market, primarily intermediated by large dealer banks with subsidiaries around the world (sometimes referred to as “money center” banks). A ...
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1 vote

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

It's not impossible for a developing country to achieve economic growth without foreign investment, although in some circumstances it could be extremely difficult. Suppose a country's gross output in ...
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  • 6,693
1 vote
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How does imposing 100 percent cash margin requirement on imports help to stabilize foreign exchange reserves of a country?

Simply because when you want to buy goods from country A, you (generally) first have to buy A's currency, which means selling yours. And given that selling a currency exerts a downward pressure on ...
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