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Feb 10, 2010 · Across 24 countries for which comparable data is available, real effective exchange rates changed by an average of only 1.3 percent from August 2008 to February 2010. 1 Shifts of more than 5 percent occurred in only 8 of the 24 countries over that period.
Jan 20, 2015 · If the root cause of the 2008 crisis and the West’s slow growth especially recently is trade imbalances caused by exchange rates which leave some economies with far lower cost bases than...
Two factors are likely to have contributed to these developments. First, during the latest crisis, safe haven effects went against the typical pattern of crisis-related flows. Second, interest rate differentials explain more of the crisis-related exchange rate movements in 2008–09 than in the past.
- 629KB
- Marion Kohler
- 12
- 2010
- Demand and Supply Shifts in Foreign Exchange Markets
- Expectations About Future Exchange Rates
- Differences Across Countries in Rates of Return
- Relative Inflation
- Purchasing Power Parity
The foreign exchange market involves firms, households, and investors who purchase foreign goods, services and assets (or who sell goods, services and assets to foreigners). As a result, they demand (or supply) foreign currencies in order to complete their transactions. For example, households buy imported goods for which they need foreign currency...
One reason to demand a currency on the foreign exchange market is the belief that the value of the currency is about to increase. One reason to supply a currency—that is, sell it on the foreign exchange market—is the expectation that the value of the currency is about to decline. For example, imagine that a leading business newspaper, like the Wall...
The motivation for investment, whether domestic or foreign, is to earn a return. If rates of return in a country look relatively high, then that country will tend to attract funds from abroad. Conversely, if rates of return in a country look relatively low, then funds will tend to flee to other economies. Changes in the expected rate of return will...
If a country experiences a relatively high inflation rate compared with other economies, then the buying power of its currency is eroding, which will tend to discourage anyone from wanting to acquire or to hold the currency. Figure 4 (the interactive graph below) shows an example based on an actual episode concerning the Mexican peso. In 1986–87, M...
Over the long term, exchange rates must bear some relationship to the buying power of the currency in terms of goods that are internationally traded. If at a certain exchange rate it was much cheaper to buy internationally traded goods—such as oil, steel, computers, and cars—in one country than in another country, businesses would start buying in t...
Dec 13, 2018 · Exchange rates are important to Australia's economy because they affect trade and financial flows between Australia and other countries. They also affect how the Reserve Bank conducts monetary policy.
- Adam Hamilton
- 2018
Dec 19, 2022 · Exchange rates in the 1990s were highly volatile and saw a lot of fluctuation. The U.S. dollar (USD) was the major currency in the international markets and was used as the reference currency...
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The primary cause of currency crises is a fixed nominal exchange rate combined with macroeconomic imbalances, such as current account or fiscal deficits, that are perceived by the market as being unsustainable at the prevailing real exchange rate.
