Lesson_68_FX intervention and the BoP

Lesson_68_FX intervention and the BoP - FX Intervention and...

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1 Lesson 68 1 FX Intervention and the BoP In our study of the Balance of Payments, we saw that financial account transactions could be classified according to whether they were undertaken by a government’s monetary authority or some other entity The purpose of this lesson is to explain the reason for this distinction and lay the groundwork for analyzing fixed exchange rates Lesson 68 2 Start with demand and supply $ Q E $ FC E = $ D $ S Lesson 68 3 Demand for dollars derived from foreign demand for U.S. goods, services, assets $ Q E $ FC E = $ D $ S
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2 Lesson 68 4 From U.S. point of view, demand for dollars represents CA and FA credits $ Q E $ FC E = $ D $ S Lesson 68 5 Supply of dollars derived from U.S. demand for foreign goods, services, assets $ Q E $ FC E = $ D $ S Lesson 68 6 From U.S. point of view, supply of dollars corresponds to CA and FA debits $ Q E $ FC E = $ D $ S
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3 Lesson 68 7 At the exchange rate where the demand and supply curves intersect, total debits = total credits $ Q E $ FC E = $ D $ S Lesson 68 8 Is there a deeper interpretation?
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This note was uploaded on 09/14/2009 for the course ECON 340 taught by Professor Leidholm during the Summer '08 term at Michigan State University.

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Lesson_68_FX intervention and the BoP - FX Intervention and...

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