Explain how the exchange is determined under a a

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Question 2Explain how the exchange is determined under?(a) A fixed exchange rate?(b) A flexible exchange rate?(c) A manage float
?In a Fixed Exchange Rate System, the foreign exchange is fixed for long periods of time by the participating countries’ central banks.
(b) A flexible Exchange rate?In a Flexible Exchange Rate System, the central bank allow the exchange rage to adjust to equate the supply and demand for foreign currency. As a result, under this situation, the exchange rate is determined by the market.
(c) A manage float?In a system of managed or dirty floating, central banks intervene to buy and sell foreign currencies in attempts to influence exchange rates. Official reserve transactions are not equal to zero.
Question 3Analyze the effects of a fall in the demandfor a country exports under fixed and flexible exchange systems. In each situation, indicate the effects on the country’s BOP and on the exchange rate.
Fixed Exchange RateWhen export demand decrease, the demand for domestic currency will decrease, hence the exchange rate will depreciate.The central bank will intervene in the foreign exchange market by buying domestic currency and selling foreign currency to keep the exchange rate constant.In the above diagram, an increase in the supply of a currency (SSUSD) from SSUSDto SSUSD1followed by an increase in the demand (DDUSD) from DDUSDto DDUSD 1leaves the exchange rate (E) constant at E = RM3.80 per USD.
Under the fixed exchange rate system, the total currency flow is not equal to zero which means that the balance of payments is in disequilibriumAny balance of payments disequilibrium will not be automatically corrected
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