A rise in the domestic inflation rate and a simultaneous, yet bigger rise in the foreign inflation rate leads to        depreciation of the foreign currency.     depreciation of the domestic currency.     no change in the exchange rate.     the effect cannot be determined without knowing the exact changes in inflation rates

Q: If a country is having its currency pegged to the U.S. dollar (hard peg), and the confidence in the…

A: To defend its fixed rate against the dollar, the central bank should dip into its international…

Q: Suppose America experiences a negative balance on goods and services (imports higher than exports.)…

A: Where any currency depreciated, it will affect price of goods and services.

Q: flexible exchange rates. Assume the economy is initially at full employment. a)  Suppose a…

A: AA-DD  model describe with the diagram the consist of the two curves the asset which represent the…

Q: A country experiencing high inflation would be more likely to intervene to strengthen its currency…

A: Approach to solving the question:Rational Detailed explanation:High inflation in a country is a…

Q: Explain why you agree or disagree with each of the following statements: i)        “A nation’s…

A: Currency appreciation refers to an increase in the value of a currency relative to other currencies.…

Q: The Federal Reserve increasing interest rates in the hope that the dollar appreciates is an example…

A: The objective of the question is to determine whether the action of the Federal Reserve increasing…

Q: Explain how you will manage each of these situations. The major export markets of your company have…

A: The export is the selling of goods/product from one country to another country. The firms/individual…

Q: although it is important to consider the impact of inflation on investments made within one country,…

A: On investments made within a country, inflation may have complicated effects. When choosing an…

Q: What happens over time to the currencies of countries with higher inflation ratesthan U.S. inflation…

A: The question is based on the concept of future currency exchange rate with difference in inflation…

Q: Purchasing Power Parity (PPP) theory states that Which of the answers is incorrect?   a . as the…

A: Purchasing power theory describe the relationship between inflation rate and exchange rate.

Q: In 1985 and 1986, U.S. interest rates fell relative to interest rates in Japan. Under floating…

A: Foreign Exchange rates play a crucial role in international trade, investment, and finance.

Q: Which one of the factors is most likely to be associated with an increase in the US trade deficit:…

A: A trade deficit is a situation which is said to be not good situation to be in ,  these are said to…

Q: If the downward pressure on the currency persists for a long period, even after successive…

A: Downward pressure: It is the devaluation in the value of the currency. It mainly happens when the…

Q: once the capital markets are integrated it is difficult for a country to maintain a fixed exchange…

A: Market is a place to exchange the products, in the financial market (FM), financial securities are…

Q: Should the economy’s current fragile recovery gather momentum, it is likely the Federal Reserve will…

A: Federal bank had responsibility of monetary policy so do it by open market operations.

Q: the following best describes the terms 'long forward position' and 'short forward position' in…

A: The main contractor said to be the contractual agreement and this is  agreement between two…

Q: Which of the following statement is incorrect? O Currency crisis is more likely happen under the…

A: Fixed exchange rate and free-floating exchange rate system are two ways in which a country can set…

Q: The U.S. economy is on track of sustainable growth now. This leads to fears of inflation and likely…

A: When interest rates rise, it tends to attract foreign capital seeking higher returns. This increased…

Balance of Payments

BOP is categorized into the following three components: