What Is an Exchange Rate and How Is It Related

question 74

Essay

What is an exchange rate and how is it related to its balance of payments? What are the four fundamental determinants of a country's exchange rate and what is likely to happen to the exchange rate in the following cases?
(1)A fall in the U.S.interest rate relative to interest rates abroad (dollar).
(2)A higher inflation rate in Japan compared to other countries (yen).
(3)A severe recession in Europe (euro).
(4)The U.S.imposes a 15% tariff on Japanese imported cars (dollar).

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Definitions:

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