Econ 356_reviewquestion_mt#1

Econ 356_reviewquestion_mt#1 - Econ 356 Review Question 1...

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Econ 356 Review Question 1. The difference relates to the time of delivery. Spot market for foreign exchange involves the purchase and sale of foreign exchange for immediate. Forward markets delivery takes place a t some specified in the future (eg, 3 months, a year) i) A currency’s value is matched to the value of another single currency or to a basket of other currencies, or to another measure of value(eg, gold)-(1) stabilize the value of a currency and control inflation ii) A currency’s value is allowed to fluctuate according to the foreign exchange market-(1) a floating exchange rate adjusts automatically-(2)enable a country to: damper the impact of shock and foreign business cycles. iii) “manage” floating exchange rate is a hybrid of a fixed exchange rate and a flexible exchange rate system . -(1) The central bank becomes a key participation in foreign exchange market-(2) The central bank has either an implicit target value or an explicit range of target for their currency. It intervenes in the foreign exchange rate market by buying and selling domestic and foreign currency to keep the exchange rate close to the desired implicit value or within the desired target values. 2) Since the US dollar appreciated significantly against the Canadian dollar in the Canadian spot market for foreign exchange. The US dollar worth more and Canadian worth less in
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This note was uploaded on 11/29/2010 for the course ECON 356 at UBC.

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Econ 356_reviewquestion_mt#1 - Econ 356 Review Question 1...

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