Economics 1022A/B Lecture Notes - Lecture 6: Interest Rate Parity, Crawling Peg, Economic Equilibrium

• School: Western University
• Department: Economics
• Course: Economics 1022A/B
• Professor: Jeannie A Gillmore

Document Summary

The exchange rate and the balance of payments. Trading currencies: traded in foreign exchange market. Interest rates in united states and other countries. Fem decreases: the exchange rate influences quantity of dollars demanded for 2 reasons, exports effect. If exchange rate falls, quantity of dollars demanded in fem increases: expected profit effect. Demand curve for canadian dollars: exchange rate rises, quantity if cdn $ demanded decreases & movement up along demand curve, if it falls then quantity demanded increases and movement down along demand curve. Supply curve for canadian dollars: exchange rate rises, quantity of cdn $ supplied increases and movement up along supply curve, falls then supply decreases and movement down along curve. 90 us cents/cdn dollar then it is at equilibrium and rate remains constant. Changes in demand for canadian dollars: the demand for canadian dollars in fem changes when there is a change in, world demand for canadian exports.