RBI often engage in international financial transactions in order to influence the exchange rate. Attempts by a Central Bank to influence the exchange rate of its home currency through buying and selling or foreign currencies is known as a managed exchange regime or managed float. Now suppose RBI decides to sell $100 of its foreign assets (FA) to Mrs. Sen in exchange for $100 of the home currency (= Rs. 5000, assuming an exchange rate of Rs, 50 per dollar). Mrs. Sen pays Rs. 5000 in cash. Based on the above transaction find and explain: a. What happens to the RBI's FA b. The total currency in circulation for the economy.

RBI often engage in international financial transactions in order to influence the exchange rate. Attempts by a Central Bank to influence the exchange rate of its home currency through buying and selling or foreign currencies is known as a managed exchange regime or managed float. Now suppose RBI decides to sell $100 of its foreign assets (FA) to Mrs. Sen in exchange for $100 of the home currency (= Rs. 5000, assuming an exchange rate of Rs, 50 per dollar). Mrs. Sen pays Rs. 5000 in cash. Based on the above transaction find and explain: a. What happens to the RBI's FA b. The total currency in circulation for the economy.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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