Why might the market exchange rate change a lot

Reference no: EM13188772

A country has had a steady value for its floating exchange rate (stated inversely as the domestic currency price of foreign currency) for a number of years. The country now tightens up on (reduces) its money supply dramatically. The country's product price level is not immediately affected, but the price level gradually becomes lower (relative to what it otherwise would have been) during the next several years.
1. Why might the market exchange rate change a lot as this monetary tightening is announced and implemented?
2. What is the path of market exchange rate likely to be over the next several years? Why?

Reference no: EM13188772

Questions Cloud

Should china revalue the yuan against the dollar : If so, describe what impact this might have on (1) U.S. balance of payments, (2) Chinese balance of payments, (3) relative competitiveness of Mexico and Thailand, (4) firms such as Wal-Mart, and (5) U.S. and Chinese retail consumers.

Determine the volume of nitric acid in the tank : If the solution entering the tank is 20% nitric acid, determine the volume of nitric acid in the tank after t minutes.

What is the path of market exchange rate likely to be over : A country has had a steady value for its floating exchange rate (stated inversely as the domestic currency price of foreign currency) for a number of years. The country now tightens up on (reduces) its money supply dramatically.

Find the largest possible volume of the box : If 2000 square centimeters of material is available to make a box with a square base and an open top, find the largest possible volume of the box.

Why might the market exchange rate change a lot : The country now tightens up on (reduces) its money supply dramatically. The country's product price level is not immediately affected, but the price level gradually becomes lower (relative to what it otherwise would have been) during the next seve..

Derive an equation for p0 as a function : A loan of P0 which accrues an interest i per period is to be paid of with a uniform gradient annuity with initial payment A and gradient G over n periods. Thus, the change in the amount of principal is governed by Pn =Pn-1(1+i)-A0 -(n-1) G (1)

How fast is the water level rising : A trough is 20 ft long and its ends have the shape of isosceles triangles that are 1.5 ft across at the top and have a height of 1 ft. If the trough is being filled with water at a rate of 11 ft3/min, how fast is the water level rising when the wa..

Which job should he have accepted : one in Toronto, Ontario, and the other in Halifax, Nova Scotia. Assume that both jobs were equally interesting to Sam and that he was indifferent between relocating to Toronto or staying in Halifax. Both positions offered a salary of $52,000.

Find the dimensions of the new corral : an existing rectangular corral such that the total area of the new corral is 1.5 times that of the original corral. the current corral's dimensions are 250 feet by 160 feet. The rancher wants to increase each dimension by the same amount.

User Account

All Pages