Exchange rate is a rate at which two currencies are exchanged in an open market. It is denominated in direct quotes or indirect quotes. In a direct quote, the domestic currency is the counter currency and the foreign currency is used as a base currency. A direct quote in the USA will be written like this; USD1.5/Euro. The reciprocal of the direct quote will be an indirect quote. Like in the above example Euro0.667/USD will be an indirect quote in the USA.
Exchange rates are available for current and future transactions. If you want to exchange two currencies right now, you will be given a spot exchange rate. If you want to exchange currencies in the future, let’s assume after three months, you can use a forward exchange rate.
The currencies can be exchanged through currency exchanges where exchange agents offer bid and ask rates for buying and selling the currencies. The difference between the bid and ask rate is called the bid-ask spread that is the transaction cost of exchanging two currencies.
Diagram a market in which the equilibrium dollar price of 1 unit
A case study in the chapter analyzed purchasingpower parity for several countries
Here is a table similar to Table 6-2 (but
2.1. If output is less than potential output,
Use the model of the small open economy to predict what would
Lakonishok Equipment has an investment opportunity in Europe. The project costs
This case is a continuation of Cases 2.4 and 3
The country of Leverett is a small open economy. Suddenly,
Refer to the information given in P12-23 for Palermo and
Choose the correct answer for each of the following questions.
