econ3 10-2

econ3 10-2 - 2-25-08 Ch. 10 continued Exchange rate Regimes...

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2-25-08 Ch. 10 continued - Exchange rate Regimes o Flexible exchange rate o Fixed Exchange Rate (developing country) o Crawling Peg Gold standard => set currency to gold Chinese are devaluing their currency To do that increase supply of currency into the market (go into foreign ex- change market in order to decrease its exchange rate) o Go buy other currency o They print money to circulate in foreign market o Because they can sell more to other country. - Crawling Peg o Exchang e rate that follows a pre-determined path determined by the government. o Requires government intervention in the foreign exchange market - Real Exchang e Rate (m akes co mp arison, che a p er to buy h ere or there) o The relative price of foreign-m a d e good a nd s ervice to U.S. m a d e goods a nd s ervi o E = no minal exchang e rat e (currency) o P = price of do m e stic good o P* = price of foreign good (trade) o Real exchang e rat e = (E x P) / (P*) Assu ming price of both fixed but exchang e rate chang e.
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This note was uploaded on 12/02/2009 for the course ECON econ taught by Professor For got during the Spring '09 term at UCSD.

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econ3 10-2 - 2-25-08 Ch. 10 continued Exchange rate Regimes...

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