Chapter 18, Problem 9CTCR

Exchange Rate Movements. Some countries encourage movements in their exchange rate relative to those of some other country as a short-term means of addressing foreign trade imbalances. For each of the following scenarios, evaluate the impact the announcement would have on an American importer and an American exporter doing business with the foreign country.

a.    Officials in the administration of the United States government announce that they are comfortable with a rising Mexican peso relative to the dollar.

b.    British monetary authorities announce that they feel the pound has been driven too low by currency speculators relative to the dollar.

c.    The Brazilian government announces that it will print billions of new reals and inject them into the economy in an effort to reduce the country’s 40 percent unemployment rate.