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Chapter 33: Q. 11 (page 753)

Briefly explain the differences between a flexible exchange rate system and a fixed exchange rate system.

Short Answer

Expert verified

Mostly in export business, it is regulated mostly by economics of home currency

Step by step solution

01

Introduction

The dollar exchange speed is considered and held by the authorities as in eurozone. That leader of a country establishes overall dollar's value in respect of bullion. or some value of yet another currency (typically the US currency), or indeed a global currency. A currency peg, but in the other contrary, is not something that is established and fluctuate.

02

Given Information

Any imbalances in buyers and sellers will just be instantly addressed inside this trade, giving a debt instrument "personality."

03

Explanation

- In either a price mechanism, the Treasury Department gets to buy an own currency mostly on foreign currency in compensation for said bank from which it is tied in terms of maintaining that regional Canadian dollar.

- With minimizing the related uncertainty, an exchange rate policy lowers currency fluctuations.

04

Step 4: 

  • Since this exchange - rate mechanism seems dynamic, a less proportion of foreign exchange is essential.
  • A free - floating exchange regime, but in the other end, can change global trade balance immediately.

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Most popular questions from this chapter

Suppose that during a recent year for the United States, merchandise imports were \(2trillion, unilateral transfers were a net outflow of \)50.2trillion, service exports were \(0.2trillion, service imports were \)0.1trillion, and merchandise exports were $1.4trillion.

a. What was the merchandise trade deficit?

b. What was the balance on goods and services?

c. What was the current account balance?

Explain how the following events would affect the market for South Africa's currency, the rand, assuming a floating exchange rate.

a. A rise in U.S. inflation causes many U.S. residents to seek to buy gold, which is a major South African export good, as a hedge against inflation.

b. Major discoveries of the highest-quality diamonds ever found occur in Russia and Central Asia, causing a significant decline in purchases of South African diamonds.

Determine if each of the following items results in a surplus or deficit in the current account of the balance of payments.

a. A Central European corporation offers products to a chain of hobby stores in the United States.

b. Japanese citizens pay a U.S. travel agency to arrange hotel accommodations, ground transportation, and tours of many U.S. cities, including New York, Chicago, and Orlando.

c. A Mexican corporation hires an accounting firm in the United States to audit its financial accounts.

d. Following a severe earthquake in Pakistan, churches and mosques in the United States contribute humanitarian aid to the country.

e. A Canadian corporation supplies raw materials to a US microprocessor maker.

Explain the demand for and supply of foreign exchange.

Understand how policymakers can go about attempting to fix exchange rates
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