Towards the end of 2009 the pound fell to a six month low of 1.0628 Euros. Figures released by the UK government suggested that demand was still low in the country. The pound was also under downward pressure because of the low value of the interest rate. A recent report suggested these would remain at their historic low of 0.5% until 2014. Business confidence in general remained frail and there was concern over when the UK economy would start to recover from its negative growth. There was huge excess capacity in the UK. In addition the government had a huge deficit which was expected to cause problems with cutbacks and tax increases in the future. Question: Analyze why the pound might have fallen so low towards the end of 2009.

Towards the end of 2009 the pound fell to a six month low of 1.0628 Euros. Figures released by the UK government suggested that demand was still low in the country. The pound was also under downward pressure because of the low value of the interest rate. A recent report suggested these would remain at their historic low of 0.5% until 2014. Business confidence in general remained frail and there was concern over when the UK economy would start to recover from its negative growth. There was huge excess capacity in the UK. In addition the government had a huge deficit which was expected to cause problems with cutbacks and tax increases in the future. Question: Analyze why the pound might have fallen so low towards the end of 2009.

Managerial Economics: A Problem Solving Approach

5th Edition

ISBN:9781337106665

Author:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor

Publisher:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor

Chapter11: Foreign Exchange, Trade, And Bubbles

Section: Chapter Questions

Problem 4MC

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Towards the end of 2009 the pound fell to a six month low of 1.0628 Euros. Figures released by the UK government suggested that demand was still low in the country. The pound was also under downward pressure because of the low value of the interest rate. A recent report suggested these would remain at their historic low of 0.5% until 2014. Business confidence in general remained frail and there was concern over when the UK economy would start to recover from its negative growth. There was huge excess capacity in the UK. In addition the government had a huge deficit which was expected to cause problems with cutbacks and tax increases in the future. Questions Explain what determines the value of a currency. Analyze why the pound might have fallen so low towards the end of 2009. Analyze the possible effects on the UK economy of a fall in the value of the currency.
The U.S. dollar is still considered the most traded and the most stable currency in the world. It is easily converted over to other currencies when trading and is also the official currency of several U.S. territories. However, a strong U.S. dollar has both advantages and disadvantages. One of the advantages that was already mentioned is that the conversion of the U.S. dollar over to other countries is fairly easy and grants it a greater degree of buying power for foreign products. This also makes foreign imports cheaper not to mention investors benefit when engaging in FDI. The disadvantages of a strong U.S. dollar is that it makes it more expensive for foreign countries to import products from the U.S., which negatively affects industries and business owners within that country as a result. It can even negatively affect the U.S. because those that conduct business internationally will technically earn less from foreign sales if their currency is not fully convertible. Overall, even…
The U.S. dollar is still considered the most traded and the most stable currency in the world. It is easily converted over to other currencies when trading and is also the official currency of several U.S. territories. However, a strong U.S. dollar has both advantages and disadvantages. One of the advantages that was already mentioned is that the conversion of the U.S. dollar over to other countries is fairly easy and grants it a greater degree of buying power for foreign products. This also makes foreign imports cheaper not to mention investors benefit when engaging in FDI. The disadvantages of a strong U.S. dollar is that it makes it more expensive for foreign countries to import products from the U.S., which negatively affects industries and business owners within that country as a result. It can even negatively affect the U.S. because those that conduct business internationally will technically earn less from foreign sales if their currency is not fully convertible. Overall, even…
Suppose we consider two countries, a home country and a foreign country. In the home country, the expected inflation rate is equal to 3.6 per cent, while the expected inflation rate abroad is equal to 4.2 per cent. Furthermore, it is known that the nominal interest rate in the home country is equal to 3.4 per cent, while the nominal interest rate abroad is equal to 4 per cent.a) First explain what is meant by absolute purchasing power parity, relative purchasing power parity and uncovered nominal interest rate parity. Then give an estimate of the expected growth in the nominal exchange rate based on each of the three theories. Finally, show that if both relative purchasing power parity and uncovered nominal interest rate parity apply, real interest rates in the two countries will be approximately equal.
5.2 The weighted average TT/US dollar selling rate depreciated marginally by 0.05 percent to US$1 = TT$6.7838 in August 2021 from US$1 = TT$6.7802 in October 2020. Similarly, the TT dollar depreciated by 5.2 percent against the Canadian dollar (CAD), by 6.4 percent against the UK pound (GBP), and appreciated by 0.07 percent against the Euro (EUR) over the reference period. 6.0 International Trade For the nine-month period ending June 2021, Trinidad and Tobago’s Balance of Visible Trade registered a $10,288.6 million surplus, an exponential increase when compared to the $1,987.8 million balance recorded for the same 2020 period. This improvement in the trade balance was due to a 24.9 percent increase in total exports, which moved from $29,317.7 million in 2020 to $36,632.2 million in 2021, along with a 3.6 percent reduction in imports, which fell from $27,329.9 million in 2020 to $26,343.6 million in the same 2021 period. Contributing to the improved Visible Trade balance was…
This question relates to the following news article New Zealand dollar drops to lowest value against US dollar since 2020 (27/09/2022) The New Zealand dollar has dropped to its lowest value against its US equivalent since March 2020. The bad news for Kiwis is that it means it'll take longer for consumer price inflation to fall. ...a weak Kiwi dollar means importing is more expensive. "While we do expect inflation rates to slowly fall from here, the longer the New Zealand dollar remains low. the slower it will take for those inflation rates to fall." ASB senior economist Mark Smith said. Six months ago the New Zealand dollar was US68.9c - now it's at US56.6c, a fall of 18 percent. Aotearoa's dollar is suffering because the US dollar is being pumped up by the US Federal Reserve lifting interest rates to tackle inflation. "interest rates globally are going up, and when rates are going up, generally people tend to look to where their money will be safest, and at the moment it's certainly…
This question relates to the following news article New Zealand dollar drops to lowest value against US dollar since 2020 (27/09/2022) The New Zealand dollar has dropped to its lowest value against its US equivalent since March 2020. The bad news for Kiwis is that it means it'll take longer for consumer price inflation to fall. ...a weak Kiwi dollar means importing is more expensive. "While we do expect inflation rates to slowly fall from here, the longer the New Zealand dollar remains low. the slower it will take for those inflation rates to fall." ASB senior economist Mark Smith said. Six months ago the New Zealand dollar was US68.9c - now it's at US56.6c, a fall of 18 percent. Aotearoa's dollar is suffering because the US dollar is being pumped up by the US Federal Reserve lifting interest rates to tackle inflation. "interest rates globally are going up, and when rates are going up, generally people tend to look to where their money will be safest, and at the moment it's certainly…
This question relates to the following news article New Zealand dollar drops to lowest value against US dollar since 2020 (27/09/2022) The New Zealand dollar has dropped to its lowest value against its US equivalent since March 2020. The bad news for Kiwis is that it means it'll take longer for consumer price inflation to fall. ...a weak Kiwi dollar means importing is more expensive. "While we do expect inflation rates to slowly fall from here, the longer the New Zealand dollar remains low. the slower it will take for those inflation rates to fall." ASB senior economist Mark Smith said. Six months ago the New Zealand dollar was US68.9c - now it's at US56.6c, a fall of 18 percent. Aotearoa's dollar is suffering because the US dollar is being pumped up by the US Federal Reserve lifting interest rates to tackle inflation. "interest rates globally are going up, and when rates are going up, generally people tend to look to where their money will be safest, and at the moment it's certainly…
This question relates to the following news article New Zealand dollar drops to lowest value against US dollar since 2020 (27/09/2022) The New Zealand dollar has dropped to its lowest value against its US equivalent since March 2020. The bad news for Kiwis is that it means it'll take longer for consumer price inflation to fall. ...a weak Kiwi dollar means importing is more expensive. "While we do expect inflation rates to slowly fall from here, the longer the New Zealand dollar remains low. the slower it will take for those inflation rates to fall." ASB senior economist Mark Smith said. Six months ago the New Zealand dollar was US68.9c - now it's at US56.6c, a fall of 18 percent. Aotearoa's dollar is suffering because the US dollar is being pumped up by the US Federal Reserve lifting interest rates to tackle inflation. "interest rates globally are going up, and when rates are going up, generally people tend to look to where their money will be safest, and at the moment it's certainly…
Turkey experienced hyperinflation in the late 1990s and early 2000s. The exchange rate for the Turkish lira was TRL650,000=$1 on January 1, 2001. In 2001, inflation in Turkey was 140%, while in the USA was only 2.5%. This led the Central Bank of Turkey to implement a mini-devaluation policy at the monthly rate of 7.5%. What was the official exchange rate on December 31, 2001? Was the Turkish lira properly valued? (Hint: Pay attention to the monthly devaluation process)
To prevent an appreciation of the British pound, the U.S. Federal Reserve has to: Sell U.S. currency Buy British currency Sell British currency Devalue the U.S. dollar
Ghana cedi is the best performing currency against US dollar’ – BawumiaThe cedi is the best performing currency in the world against the US dollar. This is according to Vice President Dr. Mahamudu Bawumia.The cedi depreciation, which has been a major problem in the country over the years, has even led to the inauguration of the FX Development Committee to tackle issues relating to the depreciation of the cedi and find solutions to them.The cedi last year depreciated by more than 12.7 percent, the worst performance since 2015 when the cedi depreciated by more than 14.6 percent.But commending the governing New Patriotic Party (NPP) for the good work done in sustaining the cedi at the Town Hall meeting held at Kumasi on Tuesday, the Vice President said there has been a major change in the cedi’s performance since the NPP got into power.“Indeed for us, if the cedi is to match what the NDC record is, in terms of the nominal change in the currency, we’d have to do a quadruple jump which…