PPT-25 The Exchange Rate and the Balance of

Payments Learning Objectives How the exchange rate is determined Trends and fluctuations in the exchange rate The effects of alternative exchange rate policies Causes of international deficits and surpluses. Two polar cases. Fixed (pegged) exchange rates. CB buys or sells reserves to maintain a set price of foreign exchange. Flexible exchange rates. CB does not intervene in market for foreign exchange. and . the Central Bank. Chapter 19. Exchange Rates are Volatile. Costs of Volatile Exchange Rates. Exchange rate volatility increases risk in international finance. . Ex. Many developing economy corporates issue securities in US$. An exchange rate devaluation will make this more expensive to repay. . UNCTAD, World Bank and IMF Workshop. Geneva, February 06-10 2017. Outline. What are the links between macroeconomic policy and the formulation of debt management strategy?. How do these links operate in practice?. Chapter 37 – . Lipsey. THE BALANCE OF PAYMENTS (BOP) . BALANCE OF PAYMENTS ACCOUNTS. Current Account. Records transactions arising from trade in goods and services, from income accruing to capital, or from transfers by residents . Sections. Exchange rate arrangements. Balance of payments. Exchange rate regime, before 1976. Desired exchange rate stability.. Currencies were largely anchored, either directly or indirectly, on gold.. Payments. Learning Objectives. How the exchange rate is determined. Trends and fluctuations in the exchange rate. The effects of alternative exchange rate policies. Causes of international deficits and surpluses. Fixed vs. Floating. The exchange rate fluctuates in a narrow range (or not at all) against a base currency over a sustained period of time. . Government action is needed to maintain the exchange rate.. condition satisfied in practice?. 1) . H. istorical examples. Italy 1992-93. Poland 2009. 2) Econometric estimation of . elasticities. OLS. The J-curve. 3) Both determinants together: Real exchange rate & income. the Foreign Exchange Market. Foreign Exchange Market. Foreign Exchange Market. Foreign Exchange market. :. Market . where different currencies are traded, one for another.. The exchange rate enables people in one country to translate . Explain how exchange rate movements are measured.. Explain how the equilibrium exchange rate is determined.. Examine factors that determine the equilibrium exchange rate.. Explain . the movement in cross exchange rates.. in International . Finance. Preview. Goals of macroeconomic policies. Gold standard. Interwar years. Bretton Woods system. Collapse of the Bretton Woods system. Macroeconomic Goals. Macroeconomic. . RATe. An . exchange rate regime, also known as the pegged exchange rate, wherein the government and central bank attempts to keep the value of the currency is fixed against the value of other currencies, is called fixed exchange rate. . Annina Kaltenbrunner, Leeds University Business School, a.kaltenbrunner@leeds.ac.uk. Daniel Perez Ruiz, Leeds University Business School, bndapr@leeds.ac.uk. Anjelo Okot, Leeds University Business School and Central Bank of Uganda, bn15ao@leeds.ac.uk. Of. . Payment. (BOP). Introduction. Balance of payments . (BOP) . accounts . are . an . accounting . record . of all monetary transactions . between a . country . and . the . rest . of the . world. These .