law Issuing the Renminbi and administering its circulation 3. Regulating financial markets‚ including the inter-bank lending market‚ the inter-bank bond market‚ foreign exchange market and gold market 4. Preventing and mitigating systemic financial risks to safeguard financial stability 5. Maintaining the Renminbi exchange rate at adaptive and equilibrium level 6. Holding and managing the state foreign exchange and gold reserves 7. Managing the State treasury as fiscal agent 8. Making payment
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its simplest form‚ the purchasing power parity exchange rate can be thought of as the level of the nominal exchange rate such that the purchasing power of a unit of currency is exactly the same in the foreign economy as in the domestic economy‚ once it is converted into foreign currency at that rate’. Taylor (2003‚ 437). If this is the case then there is no discrepancy in the price of two goods in two different countries indicating that the exchange rate is efficient and that there is no over or
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Question 2 Chapter 17 Use a figure to explain the potential effectiveness of fiscal policy to spur on the economy under a fixed exchange rate. Answer Question 2: With an aim toward increasing output‚ the government could use fiscal policy to shift the DD curve outward. The central bank will have to take steps to maintain a fixed exchange rate ‚ among the options is buying foreign assets with money‚ to shift the AA schedule outward until the equilibrium at point 3 is reached. 5 points 10 points
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means they are in a deficit. This means that they are importing more than they are exporting. This also means that there is an excess supply of pesos in the world market. Since they are on a fixed exchange rate‚ the government is going to have to intervene and buy back pesos using its official reserves account. If Mexico’s foreign exchange balance is unable to effectively buy back pesos‚ they will be forced to devalue. 2. Since the private capital account is gradually increasing‚ it means the
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indicates an excessive role of the central bank in financing the current account deficit. 2. (2 points) Suppose that the U.S. net foreign debt is 25 percent of U.S. GDP and that foreign assets and liabilities alike pay an interest rate of 5 percent per year. What would be the drain on U.S. GDP (as a percentage) from paying interest on the net foreign debt? What if the net foreign debt were 100 percent of GDP? At
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globalization taking place‚ which is making the world’s financial and commodity markets more and more integrated. The integration is both across countries as well as markets. Not only the markets‚ but even the companies are becoming international in their operations and approach. This changing scenario makes it imperative for a student of finance to study international finance. When a firm operates only in the domestic market‚ both for procuring inputs as well as selling its output‚ it needs to deal
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Section 2 in this paper will offer background information of the Linked Exchange Rate System. It defines how the monetary authorities defend the currency peg. Section 3 will summarize on how and why the Hong Kong dollar was under speculative attacks during the Asian Financial Crisis. Section 4 is a postscript on how the HK government reacts to the situation and the actions that was taken. II. The Background of the Linked Exchange Rate SystemAs a small opened economy‚ the currency of Hong Kong was used
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of Council: Joint Secretary (Capital Markets)‚ Department of Economic Affairs Responsibilities of body: The stated responsibilities of the body are financial stabilization‚ Development of Financial Sector‚ Co-ordination among Regulatory bodies‚ Supervision of economy including large conglomerates‚ Coordination international interface with financial sector bodies for e.g. Financial Action Task Force‚ Financial Stability Board etc. Securities and Exchange board of India: Established in 1988 as
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competitive price advantage Billabong had. One cent movement in the U.S./Australian dollar exchange rate means a 0.6 percent change in profit for Billabong. 2009 Australian dollar gained its value‚ predicted 10 percent in profit decline for Billabong. 1. WHY DOES A FALL IN THE VALUE OF THE AUSTRALIAN DOLLAR AGAINTS THE U.S. DOLLAR BENEFIT BILLABONG? Billabong relied solely on the foreign exchange market especially on the United States with 50 percent of company’s annual sales. Whenever the U.S
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presently weak and is expected to strengthen over time. These expectations affect the tendency of U.S investors to invest in foreign securities because the value of U.S dollar decrease will lead to the U.S company get less profit and earn less money. Consequently‚ U.S companies will pay fewer dividends for investors who invest in these companies. So‚ investors will tend to invest in foreign securities where they can get higher dividend. On the other hand‚ a weak currency can reduce unemployment but maybe
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