Answered: What is the difference between…

What is the difference between transaction demand, speculative demand, and autonomous transactions by central banks? Which of these factors determines the longterm quarterly trends in exchange rates?

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

See similar textbooks

Related questions

Q: Identify firms’ strategic responses that managers adopt in order to deal with foreign currency…

A: There are several different strategic measures companies can take to deal with exchange rate…

Q: Under a fixed exchange rate regime, how does increase in GDP effect the domestic money market…

A: Under a fixed exchange rate system, expansion in GDP impact the domestic currency market harmony…

Q: Suppose the Central bank declares an increase in Statutory Liquidity Ratio as well as CRR. What…

A: An international exchange rate, also said as a foreign exchange rate. It is the price of a currency…

Q: How are both the real interest rate, r, and the real exchange rate, Q, actually determined?

A: The inflation rate is the difference between the actual and nominal interest rates. (The nominal…

Q: Use the Mundell-Fleming model to graphically illustrate and predict what would happen to GDP, the…

A: When the demand for the currency rises, the price of the currency rises and the currency…

Q: Construct a model that shows how – in the longer run – money supply and demand as well as the dollar…

A: The exchange rate is the value of domestic currency required to be paid for obtained a unit of the…

Q: What are five (5) factors that affect real exchange rate?

A: "The rate at which one country's currency can be exchanged into another," according to the…

Q: Draw a graph with the exchange rate (RM/$) on the Y-axis and the quantity of US dollars on the…

A: In the flexible exchange rate system, the demand and the supply of currency in the foreign exchange…

Q: What are the determinants of real exchange rate? Consider the uncovered interest rate parity…

A: The real exchange rate is the price or inflation adjusted exchange rate, which explains how much…

Q: what will be the likely impact of a decerease in demand for australian goods in china on the…

A: When there is a fall in the demand for Australian goods in china it implies Chinese consumers are…

Q: Explain how permanent shifts in national real money demand functions affect real and nominal…

A: The effect of permanent shifts in national real money demand functions on real and nominal exchange…

Q: Using data from The Economist's Big Mac Index for 2011, the following table shows the local currency…

A: PPP theory states that exchange rate adjust to equate prices of goods in 2 countries. This means the…

Q: Using the concept of "carry trade," explain how a decrease in U.S. interest rates could affect the…

A: Carry trade is a strategy when the funds are withdrawn from the country with low interest rate and…

Q: Macroeconomics. Explain how the exchange rate adjusts to a temporary decrease in the foreign…

A: The factors like inflation, government debt, trade deficit, current account deficit, and other…

Q: Suppose that the Federal Reserve cannot convince the public of its commitment to fight inflation in…

A: The movement of currency from one country to another country through exchange is called the exchange…

Q: Using data from The Economist's Big Mac index for 2011, the following table shows the local currency…

A: Purchasing Power Parity refers to a popular metric used by macroeconomic analysts that compare…

Q: How can you explain this empirical result?

A: Inflation differential and exchange rates are closely related. With a low inflation rate, a…

Q: You are given the following information. The current dollar/euro exchange rate is 1.25 dollars per…

A: Inflation is the rate at which the general level of prices for goods and services rises over time,…

Q: Please fill in the last two columns using the following information: The expected US dollar-South…

A: To find the percentage change in the exchange rate, start with the current exchange rate minus the…

Q: Economists sometimes say that the current exchange rate system is a dirty float system. What does…

A: In the international market, exchange rate is determined under two different systems such that fixed…

Q: Assuming actors have not yet had time to change their expectations about the future exchange rate,…

A: The supply curve shows the diagrammatic relationship between the price of the good and the quantity…

Q: Using the IS-LM -FX diagram, show graphically and explain the effects of a contractionary monetary…

A: The IS-LM-FX model is also known as the Mundell Fleming model. Here we consider the open economy in…

Q: You are given the following information. The current dollar/euro exchange rate is 1.25 dollars per…

A: The rate of inflation is defined as an increase in price levels of goods and services over a year,…

Q: Explain how the flexible exchange rate may be use to correct disequilibrium within an economy.

A: A flexible exchange rate system is a system in which the value of the exchange rate is determined by…

Q: Would increased cost inflation in the United States relative to its major trading partners likely…

A: The international trade is beneficial for the countries and they indulge in trading that is buying…

Q: assume that policymakers at the Bank of England enforce an expansionary monetary policy. Using a…

A: When the Bank of England enforces an expansionary monetary policy, it increases the money supply in…

Q: The last time The Economist checked, a Big Mac costs $5.65 in the US while it costs 13.43 zloty…

A: Given information: A Big Mac cost in the United States is $5.65 The same Big Mac cost in Poland is…

Q: Consider our discussion of exchange rate determination. If we had an exogenous increase in US…

A: Answer: An increase in the US investment in Great Britain will lead to an increase in the demand for…

Q: If the dollar depreciates relative to the Japanese yen, how will this affect the dollar price of a…

A: A depreciation of the dollar relative to the yen leads to an increase in the dollar price of…

Q: Explain how an increase in price level in a country can affect the exchange rate of the country and…

A: Macroeconomics is a part of economics that deals with production, decision and allocation concerning…

Q: Does an expectation of a stronger exchange rate in the future affect the exchange rate in the…

A: The exchange rate refers to trading account that a country charges other country for the imports and…

Q: Please provide an account of the theory of Purchasing Power Parity (PPP) and critically evaluate its…

A: Purchasing Power Parity Purchasing power parity (PPP) is an exchange rate theory and a mechanism of…

Question

What is the difference between transaction demand, speculative demand, and autonomous transactions by central banks? Which of these factors determines the longterm quarterly trends in exchange rates?

Video Video

Expert Solution

This question has been solved!

Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.

This is a popular solution!

SEE SOLUTION Check out a sample Q&A here

Step 1

VIEW

Step 2

VIEW

Step 3

VIEW

Trending now

This is a popular solution!

Step by step

Solved in 3 steps

SEE SOLUTION Check out a sample Q&A here

Knowledge Booster

Learn more about

Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, economics and related others by exploring similar questions and additional content below.

Similar questions

Explain how exchange rates can affect a firm’s global sales.
Now assume that the COVID-19 pandemic is over and the vaccine worked out. The economy recovered and came back on track. Explain the exchange rate overshooting. Why is the exchange rate overshooting an important phenomenon? What does it help to explain?
Using data from The Economist's Big Mac index for 2011, the following table shows the local currency price of a Big Mac in several countries as well as the actual exchange rate between each country and the United States. At the time of the data collection, a Big Mac would have cost you $4.07 in the United States and GBP 2.39 in the United Kingdom. The actual exchange rate between the British pound and the U.S. dollar was $1.63 per pound. The dollar price of a Big Mac purchased in the United Kingdom was, therefore, computed as follows: NOTE: here are the options for drop down questions for when u get there The exchange rate that would have equalized the dollar price of a Big Mac in the United States and Brazil (that is, the PPP exchange rate for Big Macs) is __________ ($0.43 per real OR $1.96 per deal OR $2.33 per real OR $2.63 per real). This change would mean that the dollar had ________ (appreciated OR depreciated) against the real.
Please provide a short and concise answer to the following question: Why are exchange rates important in economy?
What is meant by exchange rate ‘overshooting’? If the government suddenly decreases the money supply, what will happen to the equilibrium in the Dornbusch Model?
which of the following is an assumption of the monetary approach to the exchange rates? A - PPP Holds B - UIRP holds C - prices are flexible D - All of the above E - Only A and C of the above
What are demand-related factors and supply-related factors, that may influence exchange ratemovements? Include any possible government-related factors.
Question Draw a graph with the exchange rate (RM/$) on the Y-axis and the quantity of US dollars on the X-axis, and explain how a large increase in the number of Malaysian workers in the United States can influence the exchange rate under a flexible exchange rate system.
The Big Mac index was introduced by The Economist magazine in 1986, as a playful example to introduce the concept of purchase power parity (PPP) and under/overvaluation of currencies. The PPP rates are usually compiled based on consumer baskets of comparable quality. The problem is that goods in different economies are hardly comparable. The customer basket contains only one good which is made everywhere in exactly the same way – McDonald’s Big Mac. You might think that is an oversimplification, but in fact the Big Mac Index has been widely used for comparing currencies ever since it was first published. Explore the concept behind the Big Mac index and critically assess the importance of comparability of goods in various economies.
How can a surge in exports and decrease in imports cause an increase in aggregate demand and what effects does it have on the exchange rate and interest rate?
Assume that Canada and the United States frequently trade with each other. Under the freely floating exchange rate system, low inflation in the U.S. will place ____ pressure on Canadian dollars (versus U.S. dollars), ____ the amount of Canadian dollars available for sale, and result in ____ inflation in Canada. a) upward; reduce; unchanged b) upward; increase; lower c) downward; reduce; lower d) downward; increase; unchanged e) None of the above
Given that the country has a floating exchange rate regime, what are the consequences of a policy mix consisting of simultaneous expansionary fiscal policy and restrictive monetary policy?