Critical Thinking: Currency Depreciation

Description

Exchange rate fluctuation may affect industries that are in direct competition with foreign producers or rely on their supplies. Specifically, international competitiveness is affected through the influence the exchange rate has on relative costs. In a critical essay, assume that the following four events are taking place:

·Americans increase their travel to Europe.

·Saudi investors purchase large amounts of U.S. stocks

·U.S. interest rates increase suddenly because of a relative increase of world interest rates.

·Other countries experience economic and political turmoil and become less stable when compared to the United States. Then, please answer the following questions:

1.How will each event affect the foreign exchange market?

2.Will your answer be different if the currency was pegged?

3.Please explain if a dirty float system will change your assessment

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