China’s Renminbi: “Our Currency‚ Your Problem” Our Currency‚ Your Problem is a case involving the issue of exchange rate regimes and the impact currency manipulation has on economies and trade. The United States and Europe argued that the Renminbi (RMB) was undervalued and claimed that the People’s Bank of China (PBoC) deliberately manipulated the exchange rate to lower the prices of exports‚ which caused the US and Europe to run huge trade deficits with China. The US and
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1. Take a look at Mexico’s balance of payments over the past few years. Use the schedule I have attached to the case – it is in the same format as we used to examine the U.S. balance of payments. What do the trade and current account balances suggest about the likelihood of a potential devaluation of the peso? Why? a. It suggests that because Mexico is importing twice as much as they are exporting that there is a strong chance that the peso will lose value to counter the constant increase in
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How is exchange rate determined. How important is the expected future exchange rate for exports and imports? 1. Introduction Exchange rate is the price of a currency expressed in another currency‚ it is one of the most important determinants of a country’s relative level of economic health. Exchange rate directly affects the prices of goods in foreign trade and foreign assets prices in the internal market‚ and indirectly the price of goods for the domestic market. A higher currency makes
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Explain‚ with the help of a diagram‚ how a government can maintain a stable foreign exchange rate. [8] For a knowledge and understanding of the influence of supply and demand in setting the foreign exchange rate. Up to 4 marks For application showing how a government can maintain a foreign exchange rate through intervention in the foreign exchange market. Up to 4 marks (6 marks maximum if no diagram provided A fixed exchange rate‚ sometimes called a pegged exchange rate‚ is also referred to
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Mid-term I Review Questions 1. In December 1994 the government of Mexico officially changed the value of the Mexican peso from 3.2 pesos per dollar to 5.5 pesos per dollar. What was the percentage change in its value? Was this a depreciation‚ devaluation‚ appreciation‚ or revaluation? Explain. 2. Many people were surprised when Vietnam became the second largest coffee producing country in the world in recent years‚ second only to Brazil. The Vietnamese dong‚ VND or d‚ is managed against the
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Balance of Payments MEANING : Balance of payment can be defined as systematic record of all economic transactions between the residence of one country and the residence of another country during a given period of time.Economic transactions can broadly be categorized in to four heads which are: 1. VISIBLE ITEMS : visible items include all those tangible goods which can be imported and exported. These are visible as they are made up of some matter or material. this is known as merchandise also.
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CHAPTER 1 Overview of Current Account Balance * Introduction: The current account is the difference between exports of goods and services and imports of goods and services. If we denote the current account balance by CA‚ we can express this definition in symbol as CA = EX – IM The current account balance is one of two major measures of the nature of a country’s foreign trade (the other being the net capital outflow. A current account surplus increases a country’s net foreign assets by the
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Pakistan is a developing country and like many other developing countries Pakistan has a semi industrialized economy and basically comprises of textiles‚ chemicals‚ food processing‚ the agricultural sector and various other industries. It is a surprising fact that Pakistan’s economy is the 27th largest growing economy in the world when measured in terms of Purchasing Power Parity (PPP). The economy has suffered from political instability‚ rising population growth rate and a war of words with the
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Econ 371: Answer Key for Problem Set 1 (Chapter 12-13) Instructor: Kanda Naknoi September 14‚ 2005 1. (2 points) Is it possible for a country to have a current account deficit at the same time and has a surplus in its balance of payments? Explain your answer using hypothetical figures. ANSWER: (1 point) Yes. The balance of payments (BoP) is the sum of current account (CA)‚ capital account (KA) and financial account (FA). Theoretically‚ because of the double-entry bookkeeping practice‚ the sum
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BOP in India has evolved greatly manner which reflects both the changes in the development and the exogenous shocks that it went through from time to time. In the long span from 1951-52 few events have made huge impacts on the BOP of India‚ one of them being the BOP crisis of India in the year 1991. Post-independence India had sought a development strategy. India had adopted the inward looking and highly interventionist strategy. Until the 80’s the current account in India was in a surplus and the
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