Briefly 1. describe the relationship between a country's inflation rate and its exchange rate. 2. explain why the above relationship exists.

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…

Central Banks are responsible for setting interest rates not the value of the domestic currency. The Bank of Canada doesn’t try to set the dollar’s exchange rate. "We let markets set its value. Because the Bank of Canada lets the Canadian dollar float, we can focus on setting interest rates to maintain inflation at 2 percent in Canada" https://www.bankofcanada.ca/2020/08/understanding-exchange-rates/Read the above explainer from the Bank of Canada and then offer your own understanding of why the Canadian dollar moves against other currencies. Use recent movements in the C$ against the US$ to illustrate your comments.

In a fixed exchange rate system, ..... A. the International Monetary Fund determines exchange rates. B. market forces play a role in determining the fixed value of a currency. C. market forces and the country's stock of gold determine its exchange rate. D. a central bank affects the value of a currency by changing its foreign exchange reserves.

Suppose the GDP of Honduras is 100,000 lempiras and the exchange rate between Honduran currency lempiras and USD is 20 lempira=$1. What is the GDP of Honduras when measured in USD?

In Minland, the central bank lowers the interest rate from 5 per cent a year to 3 per cent a year. a.Describe in detail the steps that the Bank of Minland must follow to make the interest rate fall? b.Describe the effects of the lower interest rate on consumption expenditure and investment. c. Describe the effects of the lower interest rate on the exchange rate of the Minland dollar for the UK pound. d.Describe the effects of the change in the Minland dollar exchange rate on Minland’s net exports. e.Explain whether the change in the interest rate shifts or brings a movement along Minland’s interest-sensitive expenditure curve. f.Explain the full set of ripple effects of the interest rate cut ending with the changes in real GDP and the price level.

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See for Yourself Case Taking a Bite Out of Purchasing Power Parity with the Big Mac Index In 1986, Pam Woodall introduced the Big Mac Index as an illustration of purchasing power parity (PPP), which is the theory that currencies will go up or down in value to keep their purchasing power consistent across countries. Initially a lighthearted guide to whether currencies are at their "correct" level, the Big Mac Index has grown into a global standard and is now featured in many economic textbooks and dozens of academic studies. Many refer to this as "Burgernomics." The Big Mac Index is based on the theory of PPP that says, in the long run, exchange rates should move toward the rate that would equalize the prices of an identical basket of goods and services in any two countries. This means that the price of an item in one currency should be the same price in any other currency, adjusted for that currency's exchange rate. The Big Mac Index was never intended as a precise gauge of currency…

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How will the following event affect variables 1 through 3 in the foreign exchange market under a flexible exchange rate system; other things unchanged. Event: The U.S. Central Bank (the Fed) starts buying Chinese currency using dollar reserves: Variable 1: Supply of dollar in the foreign exchange market ___(increase, decrease, unaffected: briefly explain why). Variable 2: Value of dollar in the foreign exchange market unaffected: briefly explain why). Variable 3: American goods exported to China unaffected: briefly explain why). (appreciate, depreciate, (increae, decrease,