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

Give detail explanation of exchange rate, Give detail explanation of Exchan...

Give detail explanation of Exchange Rate In most countries, exchange rate is expressed using foreign currency as base currency. For instance, in Denmark, USD exchange rate woul

Assignment, explain the profit maximizing/loss minimizing rule may be appli...

explain the profit maximizing/loss minimizing rule may be applied under the 3 scenarios

MR, Question 1: Consider a two-period, two-person pure exchange economy. Ut...

Question 1: Consider a two-period, two-person pure exchange economy. Utility functions and endowments are given as follows. u1(x0; x1) = (x0x1)2 and e1 = (18; 4) u2(x0; x1) = ln x0

Apparent paradox, Explain the apparent paradox that saving money is good fo...

Explain the apparent paradox that saving money is good for the individual but might be bad for the economy. Considering the circular flow diagram how is this relevant to public pol

How we can determine the macroeconomic performance, Macroeconomic performan...

Macroeconomic performance The UK's future macroeconomic performance must be judged on how average living standards improve, inflation is kept under control, economy grows and

Employees'' productivity, what measures should be taken to raise the produc...

what measures should be taken to raise the productivity of the workers?

Frequency distribution channel, The original data values cannot be determin...

The original data values cannot be determined once they are grouped into a frequency distribution channel?

calculate the annual cost and present value, National Marine Fisheries Ser...

National Marine Fisheries Service is considering closing a large area of federal waters to fishing in Alaska due to negative interactions of fishing with endangered Steller sea lio

Liberalisation and changing sources of fdi, Liberalisation and Changing Sou...

Liberalisation and Changing Sources of FDI: European countries  had been major sources of FDI inflows  to India until 1990. However, their relative importance declined in the

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