Exchange Rates and the Balance of Payments

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Exchange Rates and the Balance of Payments What is the connection between exchange rates and adjustments in the balance of payments? In the simplest case, assume that exchange rates are determined by private supply and demand with no government intervention. Consider what happened in 1990 after German unification when the German central bank decided to raise interest rates to curb’ inflation. After the […]

Effects of Changes in Trade

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Effects of Changes in Trade What would happen if there were changes in demand? For example, ifJapan has a recession, its demand for imports declines. As a result, the demand for American dollars would decrease. The result is . shown in Figure 29-4: The decline in purchases of American goods, services, and investments decreases the demand for dollars in the market. […]

THE FOREIGN EXCHANGE MARKET

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THE FOREIGN EXCHANGE MARKET Like most other prices, foreign exchange rates vary from week to week and month to month according to the forces of supply and demand. The foreign exchange market is the market in which currencies of different countries are traded and foreign exchange rates are determined. Foreign currencies are traded at the retail level in many banks and […]

B. THE DETERMINATION OF FOREIGN EXCHANGE RATES

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B. THE DETERMINATION OF FOREIGN EXCHANGE RATES FOREIGN EXCHANGE RATES We are all familiar with domestic trade. When I buy Florida oranges or California computers, I naturally want to pay in dollars. Luckily, the orange grower and the computer manufacturer want payment in U.S. currency, so all trade can be carried out in dollars. Economic transactions within a country are relatively simple. […]

Official Reserves

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Official Reserves One item of the financial account official-reserve changes-plays a very important role in international finance. These are the funds that governments and central banks use to manage their exchange rates. We will see later in this chapter that when a country maintains a fixed exchange rate, it does so by buying and selling foreign currencies (or by “intervening” in foreign […]

Details of the Balance of Payments

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Details of the Balance of Payments Balance on Current Account. The totality of items under section J in Table .29-1 is the balance on current account, This includes all items of income and outlay-e-import and exports of goods and services, investment income. ~U1d transfer payments, The current-account balance i~akin to the net income of a nation. It is conceptually similar to […]

Debits and Credits

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Debits and Credits Like other accounts, the balance of payments records each transaction as either a plus or a minus, The general rule in balance-of-payments accounting is the following: If a transaction earns foreign recurrence for the nation, is called a Reddit! and is recorded as a plus hem. If a transaction involves spending foreign currency, it is a debit […]

A. THE BALANCE OF INTERNATIONAL PAYMENTS

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 A. THE BALANCE OF INTERNATIONAL PAYMENTS BALANCE-Of-PAYMENTS ACCOUNTS We begin this chapter with a review of the way nations keep their international accounts, Economists keep score by looking at income statements and balance sheets. In the area of international economics, the key accounts are a nation’s balance of payments, A country’s balance of international payments is a systematic statement of all […]

TRENDS IN FOREIGN TRADE

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TRENDS IN FOREIGN TRADE An economy that engages in international trade-is called an open economy. A usefu.l measure of open-ness is the ratio of a country’s exports or imports’ to its GDP. Figure 29-1 shows the trend in the shares of imports and exports for the United States over the last half-century. It shows the large export surplus in […]