Introduction
Foreign Exchange Market
a market for converting the currency of one country into that of another country
Exchange Rate
the rate at which one
currency is converted
into another
The Functions of the Foreign Exchange Market
Currency Conversion
To convert the currency of one country
into that of another country
Insuring against Foreign
2. Policy Analysis with Partial Capital Mobility
• Expansionary fiscal policy, fixed exchange rates
IS curve shifts right, Y and R increase.
Higher R increases foreign capital inflow.
• Creates BP surplus and upward pressure on currency.
Central bank intervenes in the foreign exchange market.
• Buys excess foreign currency.
Incr
Ⅱ. Exchange rate regime
1. What is the exchange rate?
In finance, the exchange rates between two currencies specifies how much one currency is worth in terms of the other. It is the value of a foreign nation’s currency in terms of the home nation’s currency. For example an exchange rate of 91 Japanese yen (JPY, ¥) to the United States dollar (USD, $) means that 91 yen is worth the
I. Introduction of currency wars
War using the exchange rate policy has been sustainable like Europe’s exchange rate policy in the early 20th century and Japan’s exchange rate policy after World War II. Recently, Economic purposes such as restoring slowdown of economy due to financial crisis and recovery of trade deficit are combined with political purpose and retaliatory currency manipul
: Interest Rate ↑→ Currency↑
Japanese Yen surged by 4.6% to 80 yen per dollar just within minutes on Wednesday in practice and it was the biggest move in history
Insurance companies and many other Japanese Companies withdrew their foreign investments and exchanged them for Yen
in order to cover insurance and restore the country.
Yen became in demand and got strengthened.