PPT-Exchange-Rate Adjustments

and the Balance of Payments 2011 Cengage Learning All Rights Reserved May not be copied scanned or duplicated in whole or in part except for use as permitted in a license distributed with a certain product or service or otherwise on a passwordprotected website for classroom use. 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 . 2. Exchange Rate Essentials. Exchange Rates in Practice. The Market for Foreign Exchange. Arbitrage and Spot Exchange . Rates. . Arbitrage . and . Interest Rates. Conclusions. © 2014 Worth Publishers . 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. . Andrew K. Rose. Visiting Norman-Houblon Fellow. August, 2010. 1. Three Questions. Past: What do We Know about Exchange Rate Regimes Historically?. Rose “Fixed, Floating and Flaky”. Present: How did Different Exchange Rate Regimes do in the “Great Recession”?. 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. 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. Table 14-1: Exchange Rate Quotations. Value of $1.00. Domestic and Foreign . C. urrencies. In these lectures, . domestic currency. refers to the US dollar. Foreign currency . refers to the Euro, or at times to the Yen or the Yuan. 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.. Chapter 16 . International Economics. Udayan. Roy. Long Run and Short Run. Long run theories are useful when all prices of inputs and outputs have enough time to adjust fully to changes in supply and demand.. 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.. 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. the Mundell-Fleming model. Case 1. Flexible exchange rate regime. Monetary policy effectiveness. (Changes in money supply). An increase in money supply (M/P=l. 1. Y-l. 2. i eq.1.6) reduces the local interest rate and increases investments and output (eq. 1.1 and 1.3). Since the model represents an open economy, the local interest rate is now lower than the global interest rate. The UIP is no longer verified (. IIP . Methods, Tools and Applications for Germany. Ulf von . Kalckreuth. , Principal Economist-Statistician, DG Statistics, Deutsche Bundesbank*. *The paper is joint work with Stephanus . Arz. and Stefan .