Survey
* Your assessment is very important for improving the workof artificial intelligence, which forms the content of this project
* Your assessment is very important for improving the workof artificial intelligence, which forms the content of this project
AP Economics Mr. Bernstein Module 43: Exchange Rate Policy March 2017 AP Economics Mr. Bernstein Exchange Rate Policies Objectives - Understand each of the following: • The difference between fixed exchange rates and floating exchange rates • Considerations that lead countries to choose different exchange rate regimes 2 AP Economics Mr. Bernstein Exchange Rate Policy • Governments have more power to influence nominal Exchange Rates than other prices • Exchange rates are important to countries where imports and exports are larger share of GDP • Affects relative attractiveness of goods and services • Exchange Rate regimes • Fixed rates are held constant…known as “pegs” or ‘target zones” • Floating rates are determined in market 3 AP Economics Mr. Bernstein How Can an Exchange Rates be Fixed? • Exchange Market Intervention • ie China sells Yuan/buys USD to keep Chinese products cheap to US consumers • Central Banks maintain foreign exchange reserves • Governments may limit ability to exchange currency; ie Korea limits foreigners’ ability to buy Won • Fixed rates create stability • Reduces uncertainty • Limits ability to use inflationary monetary policy • Can lead to costs similar to shortages or surpluses created by price floors and ceilings 4