Is a strong currency desirable – Part 2

Yesterday we discussed whether a strong currency was desirable in terms of the macro-economic objectives of an economy. I concluded that while it helps keep inflation under control it is fairly damaging to the other macro-economic objectives. But this is a fairly simple analysis and conclusion, how can we take it further? Perhaps we need… Continue reading Is a strong currency desirable – Part 2

Is a ‘strong’ currency desirable?

Is a ‘strong’ currency desirable? Whether a strong currency is good for your country or not is a very common question I encounter when students first start learning about exchange rates and trade. Anyone new to economics often assumes that a strong currency is desirable. This is understandable but fairly simplistic. Firstly, the word ‘strong’… Continue reading Is a ‘strong’ currency desirable?

Exchange Rate Determination

Determination of an Exchange Rate: In a free market the exchange rate between currencies is determined by demand and supply. Let’s assume there are just two currencies, the $ and £, and one factor determining exchange rates, trade in goods and services. Now let’s say I want to start selling Classic American Cars to British… Continue reading Exchange Rate Determination