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

Citizens play in fostering global social progress, How is the global social...

How is the global social progress being measured today? Name some indicators of development progress that you believe reasonably reflect actual progress. What roles do corporate ci

How did economists get it so wrong, Read "How Did Economists Get It So Wron...

Read "How Did Economists Get It So Wrong" by Paul Krugman and second, the blog "History of Economics Playground", by Pedro Duarte, Tiago Mata, Clement Levallois, Yann Grd...etc., t

Elucidate how the two bonds differ, Consider two bonds. Each has a face val...

Consider two bonds. Each has a face value of $100 and matures in one year. One has a zero coupon payment, and the other pays $10 per year. A. Explain how the two bonds differ

Identification problem associated, Note and explain the identification prob...

Note and explain the identification problem associated with the following statement. "During Bill Clinton's presidency the US economy saw unusually strong economic growth; thus, Mr

Standard model, Please explain each of the following terms and explain how ...

Please explain each of the following terms and explain how each is used in the standard model. 1. Iso value line's 2. Production possibilities frontier 3. Indifference curve. You w

International trade, how can a country maintain equilibrium GDP with foreig...

how can a country maintain equilibrium GDP with foreign trade?

Business cycles, Elplain the casual factors of the traditional business cyc...

Elplain the casual factors of the traditional business cycle and its effects on sectors of the economy

What are the changes in the exchange rate, What are the Changes in the exch...

What are the Changes in the exchange rate Assume that United States is our home country and that current euro exchange rate in direct notation is SD= 1.5 (euro/USD). In indirec

GDP AND PRICE LEVEL IN SHORT RUN, #question.WHAT IS GDP AND DIFFERENT PRICE...

#question.WHAT IS GDP AND DIFFERENT PRICE LEVEL IN SHORT RUN?.

COMPLETE KEYNESTION MODEL, WHAT IS THE SHAPE OF AGGREGATE SUPPLY CURVE IN C...

WHAT IS THE SHAPE OF AGGREGATE SUPPLY CURVE IN COMPLETE KEYNESIAN MODEL

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