Adapted from the Trinidad and Tobago Guardian Newspaper, August 2020In order to see economic transformation in T&T over the next five years, the new governmenthas to focus on making the business environment in T&T more competitive. One of the waysto do this is by depreciating the exchange rate.This is the contention of economic consultant and former director of Economics for theCaribbean Development Bank (CDB) Dr Justin Ram, who told the Business Guardian: "Rightnow 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 amechanism that enhances competitiveness and as something that leads to people buying morelocally 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 managedfloat regime is a monetary position adopted by a country's Central Bank in which exchangerates fluctuate from day to day, but the Central Bank attempts to influence the country'sexchange 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 exchangerate would weaken the TT dollar against the US dollar, so that it would cost more local currencyto purchase US dollars. a. Examine the impact of currency depreciation on T&T's imports, exports, and balanceof trade.b. Graphically illustrate an exchange rate depreciation of the T&T dollar in terms of theUnited States dollar in the foreign exchange market.

A foreign exchange market is a market where currencies are bought and sold. The exchange rate of a…

Examine the impact of currency depreciation on T&T's imports, exports, and balance of trade. b. Graphically illustrate an exchange rate depreciation of the T&T dollar in terms of the United States dollar in the foreign exchange market.

Examine the impact of currency depreciation on T&T's imports, exports, and balance of trade. b. Graphically illustrate an exchange rate depreciation of the T&T dollar in terms of the United States dollar in the foreign exchange market.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Question

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.

a. Examine the impact of currency depreciation on T&T's imports, exports, and balance
of trade.
b. Graphically illustrate an exchange rate depreciation of the T&T dollar in terms of the
United States dollar in the foreign exchange market.

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