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c. Assume, T&T decides to switch to a fixed exchange rate regime. Identify and explain two differences between a fixed exchange rate regime and a managed floating exchange rate regime. d. Explain two advantages of a flexible exchange rate regime. e. Assuming the T&T dollar to US dollar exchange rate has led to a balance of payments disequilibrium for Trinidad and Tobago, discuss two strategies policy makers can use to resolve this issue.

c. Assume, T&T decides to switch to a fixed exchange rate regime. Identify and explain two differences between a fixed exchange rate regime and a managed floating exchange rate regime. d. Explain two advantages of a flexible exchange rate regime. e. Assuming the T&T dollar to US dollar exchange rate has led to a balance of payments disequilibrium for Trinidad and Tobago, discuss two strategies policy makers can use to resolve this issue.

Macroeconomics: Private and Public Choice (MindTap Course List)
Macroeconomics: Private and Public Choice (MindTap Course List)
16th Edition
ISBN:9781305506756
Author:James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson
Publisher:James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson
Chapter19: International Finance And The Foreign Exchange Market
Section: Chapter Questions
Problem 1CQ
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Adapted from the Trinidad and Tobago Guardian Newspaper, August 2020 In order to see economic transformation in T&T over the next five years, the new government has to focus on making the business environment in T&T more competitive. One of the ways to do this is by depreciating the exchange rate. This is the contention of economic consultant and former director of Economics for the Caribbean Development Bank (CDB) Dr Justin Ram, who told the Business Guardian: "Right now the exchange rate is going against production and going against competitiveness." According to Ram, the government needs to start thinking about the exchange rate as a mechanism that enhances competitiveness and as something that leads to people buying more locally produced goods and foods but also provides incentive to export. The foreign exchange system in T&T is underpinned by a managed float regime. A managed float regime is a monetary position adopted by a country's Central Bank in which exchange rates fluctuate from day to day, but the Central Bank attempts to influence the country's exchange rates by buying and selling currencies to maintain a certain range. Currently, the T&T dollar is managed at around $6.79 to US $1. Depreciating the exchange rate would weaken the TT dollar against the US dollar, so that it would cost more local currency to purchase US dollars.
Transcribed Image Text:Adapted from the Trinidad and Tobago Guardian Newspaper, August 2020 In order to see economic transformation in T&T over the next five years, the new government has to focus on making the business environment in T&T more competitive. One of the ways to do this is by depreciating the exchange rate. This is the contention of economic consultant and former director of Economics for the Caribbean Development Bank (CDB) Dr Justin Ram, who told the Business Guardian: "Right now the exchange rate is going against production and going against competitiveness." According to Ram, the government needs to start thinking about the exchange rate as a mechanism that enhances competitiveness and as something that leads to people buying more locally produced goods and foods but also provides incentive to export. The foreign exchange system in T&T is underpinned by a managed float regime. A managed float regime is a monetary position adopted by a country's Central Bank in which exchange rates fluctuate from day to day, but the Central Bank attempts to influence the country's exchange rates by buying and selling currencies to maintain a certain range. Currently, the T&T dollar is managed at around $6.79 to US $1. Depreciating the exchange rate would weaken the TT dollar against the US dollar, so that it would cost more local currency to purchase US dollars.
Assume, T&T decides to switch to a fixed exchange rate regime. Identify and explain two differences between a fixed exchange rate regime and a managed floating exchange rate regime. d. Explain two advantages of a flexible exchange rate regime. e. Assuming the T&T dollar to US dollar exchange rate has led to a balance of payments disequilibrium for Trinidad and Tobago, discuss two strategies policy makers can use to resolve this issue.
Transcribed Image Text:Assume, T&T decides to switch to a fixed exchange rate regime. Identify and explain two differences between a fixed exchange rate regime and a managed floating exchange rate regime. d. Explain two advantages of a flexible exchange rate regime. e. Assuming the T&T dollar to US dollar exchange rate has led to a balance of payments disequilibrium for Trinidad and Tobago, discuss two strategies policy makers can use to resolve this issue.
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