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
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
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
DEFINITION
A system that is in a middle of fixed and flexible. It limited the range of exchange rate fluctuation about certain currency within certain range(1~2.25%).
The fixed exchange rate system ( 1945. 10 ~ 1964. 5 )
The unitary fluctuation foreign exchange system ( 1964. 5 ~ 1980. 2 )
The multicurrency basket system ( 1980. 2 ~ 1990. 2 )
Average exchange rate system ( 1990. 3 ~
the repayment burden of foreign debt and the cost of imported raw materials
Government Failure to deal with corporate insolvencies devastating effect
Exchange rate policy
Waiting until the foreign currency reverses plummeted
Reason for making policy mistakes
The lame duck
The Ministry of Finance and Economy
& The central bank