13 - 13. Trade Deficit Effects on Exchange Rates Every...

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13. Trade Deficit Effects on Exchange Rates Every month, the U.S. trade deficit figures are announced. Foreign exchange traders often react to this announcement and even attempt to forecast the figures before they are announced. a. Why do you think the trade deficit announcement sometimes has such an impact on foreign exchange trading? b. In some periods, foreign exchange traders do not respond to a trade deficit announcement, even when the announced deficit is very large. Offer an explanation for such a lack of response. 14. Inflation Effects on Exchange Rates Assume that the U.S. inflation rate becomes high relative to Canadian inflation. Other things being equal, how should this affect the (a) U.S. demand for Canadian dollars, (b) supply of Canadian dollars for sale, and (c) equilibrium value of the Canadian dollar? Demand for Canada dollars should increase, supply of Canadian dollars for sale should decrease, and the Canadian dollar’s value should increase. 15. Interaction of Exchange Rates
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This note was uploaded on 11/30/2010 for the course FINANCE 158748574 taught by Professor Mindyyao during the Spring '10 term at Alaska Anch.

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13 - 13. Trade Deficit Effects on Exchange Rates Every...

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