Exchange Rates

匯率的定義The price of one currency in terms of another is called an exchange rate.→在開放經濟體系裡為重要的價格變數之一Ex.(1)紐約時間1999年1月11日下午4點，要買一單位的歐元(euro)須支付1.1497美元，則稱美元兑歐元的匯率為＄1.1497 per euro.(2)台北時間2000年9月7日元太外匯經濟公司收盤價，要買一單位的美元須支付31.085台幣，則稱台幣對美元的匯率為NTD31.085 per USD.匯率和國際交易(Exchange Rates and International Transactions)‧Each country has a currency in which the prices of goods and services are quoted. Ex.美國的美元、英國的英鎊、…‧Exchange rates play a central role in international trade because they allow us to compare the prices of goods and services produced in different countries.Ex.美國的消費者究竟要買＄19000的福特車還是￥2500000的三菱進口車，須視美元與日圓之間的匯率而定.透過匯率將2國商品售價換成以同一幣別表示，即可比較商品的貨幣價格高低.匯率的報價方式‧直接報價法(Direct or American terms )－the price of the foreign currency in terms of dollars or一單位外國貨幣可兌換的本國貨幣數量.Ex.＄0.009198／￥1.‧間接報價法(Indirect or European terms)－the price of dollars in terms of the foreign currency or一單位本國貨幣可兌換的外國貨幣數量.Ex.￥108.72／＄1.Ex.在美國一件Edinburgh Woolen Mill sweater售價50英鎊，(1)當美元對英鎊的匯率為＄1.50 per pound時，此毛衣的美元售價為＄1.50／￡×￡50＝＄75(2)當美元對英鎊的匯率下降為＄1.25 per pound時，(英鎊貶值，美元升值)，此毛衣的美元售價下降為＄1.25／￡×￡50＝＄62.5.(美元升值，進口到美國的進口品其美元售價下降)(3)當美元對英鎊的匯率上升為＄1.75 per pound時，(英鎊升值，美元貶值)，此毛衣的美元售價上升為＄1.75／￡×￡50＝＄87.5.(美元貶值，進口到美國的進口品其美元售價上升)匯率的變動－升值或貶值A depreciation (An appreciation) of the pound against the dollar is a fall (rise) in the dollar price of pounds.A depreciation (An appreciation) of a country’s currency markets its goods cheaper (more expensive) for foreigners.Note：英鎊相對於美元升值時，同時代表美元相對於英鎊貶值.∴在探討升(貶)值時，須注意我們討論的是哪2種幣別.結論：When a country’s currency depreciates，foreigners find that its exporters are cheaper and domestic residents find that imports from abroad are more expensive.An appreciation has opposite effects：Foreigners pay more for the country’s products and domestic consumers pay less for foreign products.匯率和相對價格(Exchange Rates and Relative Prices)前提假設：在美國一件牛仔褲的貨幣價格為＄45在英國一件毛衣的貨幣價格為￡50此2名名目價格固定不變當匯率為＄1.5 per pound時，毛衣的美元售價為＄1.50／￡×￡50＝＄75.(1)在美國一件毛衣可換＄75 per sweater／＄45 per pair of jeans＝1.67件牛仔褲，牛仔褲的英鎊售價為＄45／(＄1.5／￡)＝￡30.(2)在美國一件毛衣可換￡50 per sweater／￡30 per pair of jeans＝1.67件牛仔褲.1.67即為毛衣對牛仔褲的相對價格. (a)當匯率為＄1.75 per pound時，(英鎊升值)，毛衣的售價為＄1.75／￡×￡50＝＄87.5，一件毛衣可換＄87.5／＄45＝1.94件的牛仔褲.毛衣對牛仔褲的相對價格上升為1.94. (b).若毛衣為英國的出口財，則由(a).、(b).二式可知，當英鎊升值時，英國出口財的相對價格會上升.結論：An appreciation of a country’s currency raises the relative price of its exports and lowers the relative price of its imports.A depreciation of a country’s currency lowers the relative price of its exports and raises the relative price of its imports.外匯市場(The Foreign Exchange Market)－The market in which international currency trades take place is called the foreign exchange market.外匯市場的成員(The Actors)－1. Commercial banks(商業銀行)－為外匯市場的主角‧Foreign currency trading among banks－called inter-bank trading－accounts for most of the activity in the foreign exchange market.‧Inter-bank exchange rates－the rates banks charge to each other. No amount less than ＄1 million is traded at those rates.‧Retail rates－the rates available to corporate customers.‧The difference between the retail and wholesale interbank rates is the bank’s compensation for doing the business.2. Corporations.(公司行號)3. Non-bank financial institutions4. Central banks.Characteristics of the Market－即期與遠期匯率(Spot Rates and Forward Rates)—1.Spot exchange rate s：Two parties agree to an exchange of bank deposits and execute the deal immediately. Exchange rates governing such “on-the-spot” trading are called spot exchange rates，and the deal is called a spot transaction.Spot exchange usually becomes effective only two days after a deal is struck.The delay occurs because in most cases it takes two days for payment instructions to be cleared through the banking system.2.Forward Exchange Rate s：Foreign exchange deals sometimes specify a value date farther away then two days－30days，90days，180days，or even several years.The exchange rates quoted in such transactions are called forward exchange rates.Ex. A、B二人於9月1日簽訂外匯買賣契約，A同意售出￡100000予B，向其換得＄155000，並同意於10月1日交易.此即為30天期的遠期外匯交易，此時遠期匯率為＄1.55／￡.Note：(1).此遠期匯率＄1.55 per pound 和9月1日當天的即期匯率不同，但很接近。

汇率手续费计算公式英文回答：Exchange rates are used to convert one currency into another. When you exchange currencies, there is often a fee or commission charged by the bank or exchange provider. This fee is known as the exchange rate fee or the currency conversion fee. It is important to understand how this fee is calculated to ensure you are getting the best deal when exchanging currencies.The formula to calculate the exchange rate fee is as follows:Exchange Rate Fee = Amount to be exchanged Exchange Rate Fee Percentage.Let's break down the formula with an example. Suppose I want to exchange 1000 US dollars into British pounds. The current exchange rate is 1 USD = 0.75 GBP. The feepercentage charged by the bank is 2%.Using the formula, the exchange rate fee would be:Exchange Rate Fee = 1000 USD 0.75 GBP/USD 0.02 = 15 GBP.So, in this example, the exchange rate fee would be 15 British pounds.It is important to note that different banks and exchange providers may have different fee percentages. Some may charge a fixed fee instead of a percentage. Additionally, some may offer better exchange rates but higher fees, while others may have lower fees but less favorable exchange rates. It is always a good idea to compare different options and calculate the total cost including the exchange rate fee before making a decision.中文回答：汇率是用于将一种货币转换为另一种货币的工具。

exchange词根词缀exchange，词根为“change”（改变，交换），加上前缀“ex-”（向外，出），表示向外交换、出售、转让的意思。

以下根据其不同含义为列表：一、与商品买卖相关的词汇1. exchange rate 汇率汇率是指两种不同货币之间的相对价值，在全球范围内的汇率波动会影响国际贸易和投资。

2. stock exchange 股票交易所股票交易所是指股票买卖的场所，股票交易所中需要有注册证券交易人员和相应的监管机构。

3. exchange program 交换项目交换项目是一种国际教育交流形式，通常是学生或教师之间的交换，目的是促进不同文化之间的交流学习。

二、与人际交往相关的词汇1. cultural exchange 文化交流文化交流是促进不同文化之间相互理解的一种形式，可以通过艺术、音乐、文学、语言等方式进行。

2. student exchange 学生交换学生交换是一种国际间学生间的交流形式，学生可以去另一个国家学习，了解不同的文化和教育制度。

3. information exchange 信息交换信息交换是一种交流信息的方式，可以通过邮件、电话、网络等方式进行，促进沟通和合作。

三、与替换、更换相关的词汇1. exchange clothes 更衣更衣是指换掉身上的衣服，可以因为天气、活动等原因进行。

2. exchange gifts 互送礼物互送礼物是一种表达感谢和友好的方式，可以在节日、生日、纪念日等场合进行。

3. exchange partner 更换搭档更换搭档是指在某种活动中，更换自己原来的队友或搭档，可以因为不适应、策略等原因进行。

以上是exchange词根词缀所能推导出的部分词汇，通过前后缀进行拼接，可以方便地理解和记忆。

汇率亦称“外汇行市或汇价”，是国际贸易中最重要的调节杠杆。

一国货币兑换另一国货币的比率，是以一种货币表示另一种货币的价格。

由于世界各国货币的名称不同，币值不一，所以一国其他国家的货币要规定一个兑换率，即汇率。

英文：1. Exchange rate2. Rate of exchange【概念】因为一个国家生产的商品都是按本国货币来计算成本的，要拿到国际市场上竞争，其商品成本一定会与汇率相关。

汇率的高低也就直接影响该商品在国际市场上的成本和价格，直接影响商品的国际竞争力。

例如，一件价值100元人民币的商品，如果美元对为8.25，则这件商品在国际市场上的价格就是12.12美元。

如果美元汇率涨到8.50，也就是说美元升值，人民币贬值，用更少的美元可买此商品，所以该商品在在国际市场上的价格会变低。

商品的价格降低，竞争力变强，肯定好卖，从而促进该商品的出口。

反之，如果美元汇率跌到8.00，也就是说美元贬值，人民币升值，必将有利于美国出口商品。

同样，美元升值而人民币贬值就会有利于中国商品出口美国，反过来美元贬值而人民币升值却会大大刺激美国商品出口中国。

日本和美国要求人民币升值的一个重要考量就是，人民币升值可令中国出口商品在国际市场上的成本有较大幅度的增加，打击中国商品的竞争力，并反过来刺激中国大量进口他们的商品。

在亚洲金融危机的时候，如果人民币贬值，其他国家的金融危机将更糟糕。

正是由于汇率的波动会给进出口贸易带来如此大范围的波动，因此很多国家和地区都实行相对稳定的货币。

中国大陆的进出口额高速稳步增长，在很大程度上得益于稳定的人民币汇率政策。

[]【产生原因】各国货币之所以可以进行对比，能够形成相互之间的比价关系，原因在于它们都代表着一定的价值量，这是汇率的决定基础。

在金本位制度下，黄金为本位货币。

两个实行金本位制度的国家的货币单位可以根据它们各自的含金量多少来确定他们之间的比价，即汇率。

如在实行金币本位制度时，英国规定1英镑的重量为123.27 447格令，成色为22开金，即含金量113.0016格令纯金；美国规定1美元的重量为25.8格令，成色为千分之九百，即含金量23.22格令纯金。

有关汇率英语作文In the global economy, the exchange rate is a critical financial metric that influences trade, investment, and the overall economic health of a country. An exchange rate is the value of one country's currency in terms of another country's currency, and it plays a pivotal role in international transactions.Firstly, exchange rates are determined by the foreign exchange market, where supply and demand for currencies are constantly changing. Factors such as interest rates, economic performance, and political stability can all affect the value of a currency. For instance, if a country has a strong economy with low inflation and high interest rates, its currency is likely to be in high demand, leading to an appreciation in value.Secondly, the fluctuation of exchange rates can have significant implications for businesses and consumers. For businesses engaged in international trade, a favorable exchange rate can reduce costs and increase competitiveness. Conversely, an unfavorable rate can erode profits and make products less attractive in foreign markets.Moreover, exchange rates are crucial for tourists and students studying abroad. A strong domestic currency can make travel more affordable, as it requires less of the home currency to purchase foreign currency. However, this can alsolead to a decrease in tourism from other countries, as the destination becomes more expensive for foreign visitors.Furthermore, governments and central banks often intervene in the foreign exchange market to manage their currency's value. This can be done through various monetary policies, such as adjusting interest rates or engaging in currency swaps. Such interventions aim to stabilize the currency and protect the economy from excessive volatility.Lastly, understanding exchange rates is not just importantfor economists and financial analysts; it is also essential for anyone involved in international dealings. Knowledge of exchange rates can help individuals make informed decisions about when to travel, invest, or conduct business abroad.In conclusion, the exchange rate is a complex and dynamic aspect of the global economy that affects everyone from multinational corporations to individual consumers. By staying informed about exchange rate movements and their underlying causes, one can better navigate the complexities of international finance.。

Exchange Rates II: The Asset Approach in the Short Rune the money market and FX diagrams to answer the following questions about therelationship between the British pound (£) and the U.S. dollar ($). The exchange rate is in U.S. dollars per British pound, E $/£. W e want to consider how a change in the U.S. money supply affects interest rates and exchange rates. On all graphs, label the initial equilibrium point A.a.Illustrate how a temporary decrease in the U.S. money supply affects the moneyand FX markets. Label your short-run equilibrium point B and your long-run equilibrium point C .Answer:See the diagram below.S-23i $i 1$i 2$2$DR 1DR2E 1E E $/£M 1US P 1US M 2US P 1USing your diagram from (a), state how each of the following variables changesin the short run (increase/decrease/no change): U.S. interest rate, British interestrate, E $/£, E e $/£, and the U.S. price level.Answer: The U.S. interest rate increases, the British interest rate does notchange, E $/£decreases, E e $/£does not change, and the U.S. price level does notchange.ing your diagram from (a), state how each of the following variables changesin the long run (increase/decrease/no change relative to their initial values atpoint A ): U.S. interest rate, British interest rate, E $/£, E e $/£, and U.S. price level.Answer:All of the variables return to their initial values in the long run. This isbecause the shock is temporary, implying the central bank will increase themoney supply from M 2to M 1in the long run.e the money market and FX diagrams from (a) to answer the following questions.This question considers the relationship between the Indian rupees (Rs) and the U.S.dollar ($). The exchange rate is in rupees per dollar, E Rs /$. On all graphs, label the ini-tial equilibrium point A .a.Illustrate how a permanent increase in India’s money supply affects the money andFX markets. Label your short-run equilibrium point B and your long-run equi-librium point C .Answer:See the following diagram. Thick arrows indicate temporary movementwhile thinner ones indicate the movements in the long run. In the short run,prices are fixed. Therefore the real money supply changes from MS 1to MS 2, thustemporarily lowering the domestic interest rate. In the long run, as prices rise,the real money supply and interest rate return to their original level. In the for-eign exchange market, FR shifts to the right and stays there permanently becauseof an expected depreciation of rupees.S-24Solutions ■Chapter 4(15) Exchange Rates II: The Asset Approach in the Short Runi Rs i 1Rs i 2Rs1Rs2Rs12E 1E 2E 3M 2INP 2IN E Rs/$M 1IN P 1IN M 2IN P 1IN3.Is overshooting (in theory and in practice) consistent with purchasing power parity?Consider the reasons for the usefulness of PPP in the short run versus the long run and the assumption we’ve used in the asset approach (in the short run versus the long run). How does overshooting help to resolve the empirical behavior of exchange rates in the short run versus the long run?Answer:Y es, overshooting is consistent with PPP. Investors forecast the expected ex-change rate based on the theory of PPP.When there is some change in the market, the investors know the exchange rate will change to equate relative prices in the long run.This is why we observe overshooting in the short run—the investors incorporate this information into their short-run forecasts. Exchange rates are volatile in the short run.The theory’s implication that there is exchange rate overshooting (in response to per-manent shocks) is one explanation for short-run volatility in exchange rates.e the money market and foreign exchange (FX) diagrams to answer the followingquestions. This question considers the relationship between the euro (€) and the U.S.dollar ($). The exchange rate is in U.S. dollars per euro, E$/€. Suppose that with fi-nancial innovation in the United States, real money demand in the United States de-creases. On all graphs, label the initial equilibrium point A.a.Assume this change in U.S. real money demand is temporary. Using the FX andmoney market diagrams, illustrate how this change affects the money and FXmarkets. Label your short-run equilibrium point B and your long-run equilib-rium point C.Answer: See the following diagram. The long-run values are the same as the ini-tial values because the shock is temporary. Also because the shock is temporary,we assume that the reversal of real money demand occurs before the price leveladjusts—that is, MD returns from MD2to MD1before the price level changes. S-26Solutions ■Chapter 4(15) Exchange Rates II: The Asset Approach in the Short Run i$i1$i2 $i1$i2$1E1M1US / P1US E2E$/€b.Assume this change in U.S. real money demand is permanent. Using a new dia-gram, illustrate how this change affects the money and FX markets. Label your short-run equilibrium point B and your long-run equilibrium point C.Answer:See the following diagram. In the long run, the price level will have to increase to adjust for the drop in real money demand (assuming the central bank does not change the money supply, M). That is, the nominal interest rate returns to its initial value in the long run. This requires that the price level increase to reduce real money supply. The drop in real money demand will have to be met one-for-one with a drop in real money supply (generated by an increase in the price level). In this case, the expected exchange rate changes because the shock is permanent. Therefore, FR schedule in the forex market also shifts upward.Solutions ■Chapter 4(15) Exchange Rates II: The Asset Approach in the Short RunS-27i 1$i 2$1E 1E 2E 3E $/€i $i 1$i 2$M 1US / P 1US M 1US / P 2US 2c.Illustrate how each of the following variables changes over time in response to apermanent reduction in real money demand: nominal money supply M US , price level P US , real money supply M US /P US , U.S. interest rate i $, and the exchange rate E $/€.Answer:See the following diagrams.M US P US i $T T nE $/⑀M US /P US M US /P US22115.This question considers how the FX market will respond to changes in monetarypolicy. For these questions, define the exchange rate as Korean won per Japanese yen,E WON /¥. Use the FX and money market diagrams to answer the following questions.On all graphs, label the initial equilibrium point A .a.Suppose the Bank of Korea permanently decreases its money supply. Illustrate theshort-run (label the equilibrium point B ) and long-run effects (label the equilib-rium point C ) of this policy.Answer:See the following diagram. In the short run, prices are fixed. Thereforethe real money supply changes from MS 1to MS 2, thus temporarily raising the Ko-rean interest rate. In the long run, as prices fall, the real money supply and interestrate return to their original levels. In the foreign exchange market, FR shifts to theleft and stays there permanently because of an expected appreciation of won.S-28Solutions ■Chapter 4(15) Exchange Rates II: The Asset Approach in the Short Runi won i 1won i 2won1won2wonM 1K / P 1K M 2K / P 2K M 2K / P 1K 1E 1E 3E 2E won/¥2b.Now , suppose the Bank of Korea announces it plans to permanently decrease itsmoney supply but doesn’t actually implement this policy . How will this affect theFX market in the short run if investors believe the Bank of Korea’s announcement?Answer:See the following diagram. I n this case, interest rates on won-denominated deposits don’t change because the Bank of Korea doesn’t cut themoney supply. However, because investors expected the Bank of Korea to cut themoney supply, they expect the won will appreciate relative to the yen, causing adecrease in the return on yen-denominated deposits in the short run. Notice theresulting change in the exchange rate is relatively small (compared with the dra-matic decrease we see in [a]).i won i 1won M 1K / P 1K DR 1E 1E 2E won/¥c.Finally, suppose the Bank of Korea permanently decreases its money supply butthis change is not anticipated. When the Bank of Korea implements this policy,how will this affect the FX market in the short run?Answer:In this case, the expected exchange rate is unchanged because the in-vestors didn’t expect the decrease in the money supply.Solutions ■Chapter 4(15) Exchange Rates II: The Asset Approach in the Short RunS-29i won i 1won i 2won 2won1wonM 1K / P 1K M 2K / P 1K DR 1DR E 1E 2E won/¥ing your previous answers, evaluate the following statements:i.If a country wants to increase the value of its currency, it can do so (tem-porarily) without raising domestic interest rates.ii.The central bank can reduce both the domestic price level and the value ofits currency in the long run.iii.The most effective way to increase the value of a currency is through sur-prising investors.Answer: Though it is theoretically possible, as shown in (b), it is not a good pol-icy because it is bad for the policy makers reputation in the long run.i.True; shown in (b).ii.False; shown in (a) A reduction in price level implies an exchange rate ap-preciation by PPP .iii.False; shown in (b) and (c) compared with (a). The most dramatic appreci-ation in the won occurs when the reduction in M is coupled with investorsanticipating the appreciation in the won. In general, a policy must be cred-ible for it to have an effect in the long run.6.In the late 1990s, several East Asian countries used limited flexibility or currency pegsin managing their exchange rates relative to the U.S. dollar. This question considers how different countries responded to the East Asian Currency Crisis (1997–1998).For the following questions, treat the East Asian country as the home country and the United States as the foreign country. Also, for the diagrams, you may assume these countries maintained a currency peg (fixed rate) relative to the U.S. dollar. Also, for the following questions, you need consider only the short-run effects.a.In July 1997, investors expected that the Thai baht would depreciate. That is, theyexpected that Thailand’s central bank would be unable to maintain the currency peg with the U.S. dollar. Illustrate how this change in investors’ expectations af-fects the Thai money market and the FX market, with the exchange rate defined as baht (B) per U.S. dollar, denoted E B/$. Assume the Thai central bank wants to maintain capital mobility and preserve the level of its interest rate and abandons the currency peg in favor of a floating exchange rate regime.Answer:If Thailand is willing to let its currency float against the dollar, thenThailand’s central bank can maintain monetary policy autonomy and interna-tional capital mobility. See the following diagram:S-30Solutions ■Chapter 4(15) Exchange Rates II: The Asset Approach in the Short Runi baht i 1bahtM 1T / P 1T ERDR 12E 1E 2E baht/$b.I ndonesia faced the same constraints as Thailand—investors feared I ndonesiawould be forced to abandon its currency peg. Illustrate how this change in in-vestors’ expectations affects the Indonesian money market and the FX market,with the exchange rate defined as rupiahs (Rp) per U.S. dollar, denoted E Rp /$. As-sume the Indonesian central bank wants to maintain capital mobility and the cur-rency peg.Answer: If Indonesia wants to maintain the currency peg against the dollar andmaintain international capital mobility, it will have to give up monetary policyautonomy. In this case, Indonesia has to increase the domestic interest rate to keepinvestors from dumping their rupiah-denominated deposits for U.S. dollars andmove their investments out of Indonesia (this would then cause a depreciation inthe rupiah).i rup i 1rup i 2rup 1rup 2rupM 1I / P 1I M 2I / P 1I 12FR E 1E rupiah/$2c.Malaysia had a similar experience, except that it used capital controls to maintainits currency peg and preserve the level of its interest rate. Illustrate how this change in investors’ expectations affects the Malaysian money market and the FX market,with the exchange rate defined as ringgit (RM) per U.S. dollar, denoted E RM/$. Y ou need show only the short-run effects of this change in investors’ expectations.Answer:See the following diagram. In the absence of capital controls Malaysian interest rate would have to rise. However, by preventing investors from taking ad-vantage of arbitrage, Malaysia creates a disequilibrium. The investors require i 2RM to keep their deposits in Malaysia, but they only receive i 1RM . Because of the cap-ital controls imposed by Malaysia, investors cannot withdraw their ringgit-denominated deposits (selling ringgit in exchange for dollars in the FX market).n effect, the foreign market equilibrium diagram shown below does notwork/exist. This allows Malaysia to maintain monetary policy autonomy and a fixed exchange rate at the same time.Solutions ■Chapter 4(15) Exchange Rates II: The Asset Approach in the Short RunS-31i RM i 1RM i 2RM 1RM 2RM M 1M / P 1M 12E 1E RM/$pare and contrast the three approaches just outlined. As a policy maker,which would you favor? Explain.Answer: There is no “correct” answer to this question. The cases above highlight the trilemma because each country can choose a different option depending on their domestic or international priorities. They need to compare the benefits of having any two of (a) fixed exchange rates, (b) monetary autonomy, and (c) in-ternational capital mobility against the cost of not having the third one.7.Several countries have opted to join currency unions. Examples include the Euroarea, the CFA franc union in W est Africa, and the Caribbean currency union. This in-volves sacrificing the domestic currency in favor of using a single currency unit in multiple countries. Assuming that once a country joins a currency union it will not leave, do these countries face the policy trilemma discussed in the text? Explain.Answer: These countries do face the trilemma because they are committed to main-taining the first policy goal of a fixed exchange rate. Joining a currency union effec-tively means a country has a fixed exchange rate without the need for government intervention because the money supply is controlled by a regional central bank for member countries. This effectively reduces the choice to a dilemma between mone-tary policy autonomy versus international capital mobility. T ypically, countries that are parts of a currency union sacrifice monetary policy autonomy; policy decisions are made jointly rather than independently.S-32Solutions ■Chapter 4(15) Exchange Rates II: The Asset Approach in the Short Run8.During the Great Depression, the United States remained on the international goldstandard longer than other countries. This effectively meant that the United States wascommitted to maintaining a fixed exchange rate at the onset of the Great Depression.The U.S. dollar was pegged to the value of gold along with other major currencies,including the British pound, the French franc, and so on. Many researchers haveblamed the severity of the Great Depression on the Federal Reserve and its failure toreact to economic conditions in 1929 and 1930. Discuss how the policy trilemma ap-plies to this situation.Answer: The United States was committed to the fixed exchange rate with gold;consequently, policy makers had to sacrifice either monetary policy autonomy or cap-ital mobility, just as the trilemma suggests. Based on the information given in thequestion, we can assume that the policy did not respond to the U.S. business cycle(policy makers did not exercise monetary policy autonomy). Thus, if we assume in-ternational capital mobility, the United States could not react to the business cyclewith a monetary expansion until it abandoned the gold standard.9.On June 20, 2007, John Authers, investment editor of the Financial Times,wrote thefollowing in his column “The Short View”:The Bank of England published minutes showing that only the narrowest pos-sible margin, 5–4, voted down [an interest] rate hike last month. Nobody fore-saw this. . . . The news took sterling back above $1.99, and to a 15-year highagainst the yen.Can you explain the logic of this statement? Interest rates in the United Kingdomhad remained unchanged in the weeks since the vote and were still unchanged afterthe minutes were released. What news was contained in the minutes that causedtraders to react? Use the asset approach.Answer: The news item indicates that investors did not expect the decision to leaveinterest rates unchanged would be divisive. They thought that any increases in inter-est rates would happen further in the future. Higher interest rates would lead to anappreciation in the pound sterling. When the minutes showed that interest rate in-creases were more likely than previously thought, investors came to expect an appre-ciation sooner rather than later. This caused an appreciation in the current spot ex-change rate.10.W e can use the asset approach to both make predictions about how the market willreact to current events and understand how important these events are to investors.Consider the behavior of the Union/Confederate exchange rate during the CivilW ar. How would each of the following events affect the exchange rate, defined as?Confederate dollars per Union dollar, EC$/$a.The Confederacy increases the money supply by 2,900% between July and De-cember of 1861.Answer: The Confederate money supply increases, the exchange rate increases,and the Confederate dollar depreciates.b.The Union Army suffers a defeat in Battle of Chickamauga in September 1863.Answer: Appreciation in the Confederate dollar is expected because a militaryvictory means a stable economy and monetary policy, implying decreased uncer-tainty and risk, the exchange rate decreases, and the Confederate dollar appreci-ates.c.The Confederate Army suffers a major defeat with Sherman’s March in the au-tumn of 1864.Answer: Just the opposite of (b) above: depreciation in the Confederate dollar isexpected because of military defeat increases economic and monetary uncertaintyand risk; the exchange rate increases, and the Confederate dollar depreciates.。