Show the changes in the exchange rate, Macroeconomics

Assignment Help:

Q. Show the Changes in the exchange rate?

Assume that United States is our home country and the current euro exchange rate in direct notation is SD = 1.5 (euro/USD). In indirect notation, SI = 0.667 (USD/euro). If euro becomes more costly in terms of the USD we say that USD has depreciated against the euro (lost in value). It means that SD has increased (to say SD = 1.6) and that SI has fallen (to 0.625). If euro becomes less expensive we say that USD has appreciated against the euro. In such a case, SD will fall and SI will increase. Obviously, when USD depreciates against the euro, euro appreciates against the USD.

Remember:

A foreign currency is more expensive Û domestic currency has depreciated

A foreign currency is less expensive Û domestic currency has appreciated

Also keep in mind that whenever a currency depreciates, S will increase if we use direct notation and decrease if we use indirect notation.

If a country has a fixed exchange rate (say against a particular currency), government or central bank may change this fixed exchange rate. Suppose that Hong Kong is our home country and that Hong Kong dollar (HKD) is fixed against USD at the exchange rate 7.8 HKD/USD (direct notation). If central bank in Hong Kong changes this exchange rate to say 8.2 HKD/USD it makes foreign currency more expensive and HKD cheaper. In this case we say that HKD has beendevalued. Though, if exchange rate is changed to say 8.6 HKD/USD we say that HKD has been revalued.


Related Discussions:- Show the changes in the exchange rate

Explain the problem involved in consumer price index, Q. Explain the proble...

Q. Explain the problem involved in consumer price Index? To explain the problems involved in calculating CPI we consider MP3 players. If you measure the average price of MP3 pl

Monetary Policy.., Suppose the banking system has reserve of $750000, deman...

Suppose the banking system has reserve of $750000, demand deposits of $2500000 and a reserve requirement of 20%. a. if the fed now purchases $125,000 worth of govt bonds from the

Gold standard after world war i, Did Germany ever go back on the Gold Stand...

Did Germany ever go back on the Gold Standard after World War I and prior to World War II? If so, what were the economic and political effects of doing so? I know it was on the Gol

Supply, what happens when there is changes in the quantity supply?

what happens when there is changes in the quantity supply?

Types of taxes and laffer curve, Types of Taxes Which a Government can impo...

Types of Taxes Which a Government can impose on the citizens are as follows: With the theory of taxation covered, we can now move towards the actual menu of the taxes the gover

The supply and demand for oil in the us, Over the last year both the supply...

Over the last year both the supply and demand for oil in the US has gone up. What might have caused this and what happened to the price and quantity of oil?

Find out the equilibrium level of income, Suppose you have the following in...

Suppose you have the following information about a closed economy: C = 50 + 0.80 (Y-T) I = 200 G = 100 a) Find out the equilibrium level of income. b) Suppose G in

Gkx industries expects sales of its hydraulic seals, GKX Industries expects...

GKX Industries expects sales of its hydraulic seals (in inch and metric sizes) to increase according to the cash flow sequence $70+4k, where k is in years and cash flow is in $1000

What is labor market, Q. What is Labor Market? Labor market in the IS-L...

Q. What is Labor Market? Labor market in the IS-LM model is the same as in cross model. Hence the IS-LM model is only applicable if profit-maximizing quantity of L would result

Explain about monetary base, Q. Explain about Monetary base? Monetary b...

Q. Explain about Monetary base? Monetary base is defined as the total value of all currency (coins andbanknotes) outside the central bank and commercial banks' (net) reserves w

Write Your Message!

Captcha
Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd