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Essay / Research Paper Abstract
This 7 page paper answers three questions set by the student. The first looks at what will happen to the nominal exchange rate and domestic interest rates if a countries exports fall, and how different actions by the government will impact on the exchange rate and interest rate. The second question considers the impact of printing more money on the exchange rate and the local economy. The last question explains the incompatible trinity also known as the impossible trinity or the unholy trinity and shows how this is seen in real life. The bibliography cites 1 sources.
Page Count:
7 pages (~225 words per page)
File: TS14_TEintrinty.rtf
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Unformatted sample text from the term paper:
in the demand and as such this means there will be a fall in the demand for the currency to buy the goods with. The way a currency is valued
on the open markets is the result of supply and demand, Where there is a high level of demand and the demand exceeds the supply the price, or rate, for
the currency, will increase. This can increase to a point where the demand stars to drop off and a point of equilibrium is reached. It is possible the country X
may have had a weak currency and as such built up a good export business as when the currency was weak. If a currency is weak then the goods are
proportionally cheaper to the countries who are importing them. This increases demand for the currency and as such the price increases. Once the currency get stronger the relative price increases
and as such the demand starts to fall back. This means there is less demand for the currency and the price of the currency, the exchange rate, will start to
fall. This is seen in terms of supply and demand and a fall in demand as shown below (Nellis and Parker, 2000). The interest rates may also be
impacted, but this will depend on the overall economic policy of the government. If we assume that there is the desire to support the currency rather than a desire to
depreciate the currency then the result is likely to see an increase in interest rates. This is for two reasons, first a higher interest rate will increase demand for the
currency to gain the higher return. Also, if the currency is weaker there will be a greater potential for a higher trade deficit with more money leaving the country. Where
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