Should China revalue the yuan against the dollar? If so‚ what impact may this have on (1) US balance of payments‚ (2) Chinese balance of payments‚ (3) relative competitiveness of Mexico and Thailand‚ (4) firms such as Wal-Mart‚ and (5) US and Chinese retail consumers? China‚ the largest growing market in the world‚ currently has a policy regarding monetary regulation that allows the Yuan to “float”. This has seen the Yuan appreciate by approximately 24% over the past few years. Today‚ the exchange
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CURRENCY DEPRECIATION AND ITS IMPACTS Devaluation means decreasing the value of nation’s currency relative to gold or the currencies of other nations. Devaluation occurs in terms of all other currencies‚ but it is best illustrated in the case of only one other currency. Devaluation and Depreciation are sometimes used interchangeably‚ but they always refer to values in terms of other currencies and the value of currency is determined by the interplay of money supply and money demand. In common modern
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there is still a strong existence and high demand for such a market due to restrictions and limited access in the home country on trade of foreign currency. 2. During the time period of the case‚ how many devaluations of the Venezuelan currency were there? There were a total of four devaluations during the time period of the case. 3. What causes a country to devalue its currency? Are there failures in the economy and what would they be? A country must devalue its currency if it cannot maintain
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debt renegotiation was formalized. The devaluation of the peso in December 1994 put an abrupt end to these capital inflows and precipitated the financial crisis. • Development of the Crisis In February of 1994‚ the reserves of Mexico were of 29.000 million dollars‚ but for December of that same year they were reduced to 6.000 million dollars and at the time of making the decision to devaluate (20 of December of 1994) they only ascended to 3.500 million dollars. To this the deficit in the current account
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Currency war between China and USA and its global impacts on economy. Currency War: Currency war‚ also known as competitive devaluation‚ is a condition in international affairs where countries compete against each other to achieve a relatively low exchange rate for their own currency. As the price to buy a particular currency falls so too does the real price of exports from the country. Imports become more expensive too‚ so domestic industry‚ and thus employment‚ receives a boost in demand
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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 imports. It is also important to point out that the exports in 1974 and 1975 are practically the same. The current account balance is negative 4 billion U.S. dollars which is 4 times larger than it was in 1972. All this leads me
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devalued? What is failing in the economy? Devaluation is the action of a government or central bank authority to drop the spot foreign exchange value of a currency that is pegged to another currency or to gold. Countries occasionally devalue their own currencies as a result of persistent and sizable trade deficits. They intentionally devalue their currencies in an effort to make their exports more price-competitive on world markets Competitive devaluations are often considered self-destructive‚ however
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imported with US dollars => increase in prices => inflation => recurring devaluations. A steep devaluation of a country currency‚ would be a signal for foreigners to stop investing in the country due to speculations and uncertainty => push interest rates for loans => increase unemployment and that leads to recession= > devaluation of the currency is not‚ by far‚ the best way to improve the economy. Q2: What benefit did the Venezuelean regime in power gain from the repeated devaluation of the bolivar
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Full Dollarization The Pros and Cons Andrew Berg‚ Eduardo Borensztein ©2000 International Monetary Fund December 2000 [Preface] [The Pros and Cons of Full Dollarization] [Questions About Pegs] [The Appeal of Dollarization] [The Risk Premium] [Seigniorage] [Stability] [Effect on Trade and Financial Links] [Exit Option] [Lender of Last Resort Function and Financial System Stability] [Conclusions] [Author Information] Preface The Economic Issues Series aims to make available
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• Effects • Cure • Depreciation vs. devaluation * 3. Causes 1. 1.Demand Supply Rule: The value of rupee follows the simple demand and supply rule of economics. If the demand for the dollar in India is more than its supply‚ dollar appreciates and rupee depreciates 2. 2.Dollar gaining strength against the other currencies: The central banks of Eurozone and Japan are printing excessive money due to which their currency is devalued. Hence‚ making the US dollar stronger against the other currencies
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