--%>
Assignment Help - homework help

Equilibrium market rate & Undervalued currency

Question:

a. In the short-run, it is easier for a country to maintain a peg that undervalues a currency (relative to the equilibrium market rate) than it is to maintain a peg that overvalues the currency (relative to the equilibrium market rate).
Explain Why?

Answer:

An undervalued currency will help a country to promote and increase its exports, as the exchange rate is lower than the market equilibrium; resulting in lower prices of exports than the ideal export prices. At the same time, imports are costlier, so the net exports increases. In case of an overvalued currency, net exports will fall and the trade deficit will increase.

 

 

   Related Questions in Business Economics

  • Q : Contrast a vertically integrated firm

    Contrast a vertically integrated firm, a horizontally integrated firm, and a conglomerate?

    		•
  • Q : Inefficiencies and inequities by

    An employer that exaggerates the safety of a position or the prospects for advancement to job applicants makes inefficiencies as well as arguable inequities due to: (1) signaling. (2) credentialism. (3) screening. (4) adverse selection. (5) a moral hazard.

  • Q : Roundabout production Describe the

    Describe the merits of “roundabout” production?  Describe the term “division of labor”?

    		•
  • Q : Explain about the principle of

    Economic efficiency needs that, relative to the other goods which different individuals might consume, the people who value exact goods relatively the most should own and/or use all goods. Such principle is termed as: (i) economic equity. (ii) allocat

    		•
  • Q : Explain about the successful speculation

    Successful speculation tends to: (1) generate inflationary pressure. (2) assist stabilize relative prices. (3) reduce the incomes of the eventual producers of goods. (4) make relative prices more volatile. (5) increase the risk born through the eventu

    		•
  • Q : Demand supply with the aim of diagrams

    with the aim of diagrams show the difference between A change in demand and A change in quantity demand

    		•
  • Q : Illustrate the Comparative advantage

    Illustrate the Comparative advantage and terms of trade?

    		•
  • Q : Raising consumer surplus problem For

    For the question below, utilize the given information. The market for gizmos is competitive, with an increasing sloping supply curve and a downward sloping demand curve. With no govt. intervention, the equilibrium price is $25 and the equilibrium quantity is 10,000 gi

    		•
  • Q : Describe the equation of a linear

    Describe the equation of a linear relationship?

    		•
  • Q : Construct a 2-D graph which comprises

    How to construct a 2-D graph which comprises drawing a horizontal and a vertical axis?

    		•