When it is excess supply or excess demand, market forces will drive the exchange rate moving to the equilibrium (Appendix 1). The currency is appreciation when the rate of one currency increases. An increase of the demand and a decrease of the supply of that currency can lead to an appreciation. Appreciation may lead to recession as the price of exchange rate become more expensive and foreigner will slowing the demand of the imports. Whereas, it is depreciation when the rate of one currency is declines.
1. The definition of interest rate parity is the interest rate differential between two countries is equal to the differential between the forward exchange rate and the spot exchange rate. The investors through interest rate differentials and forward exchange rates for different countries to achieve arbitrage activities. With uncovered arbitrage ongoing, forward rate differential will continue to increase, the rate of return offered by the two currencies until completely equal, then covered arbitrage activities will stop, exactly equal to the difference between the two countries forward interest rate, namely interest rate parity holds. The arbitrage opportunity in the across different currencies when the parity breaks down.
Nigeria has adopted various exchange rate regimes since the post independence era. The system operated by Nigeria before 1973 put naira on par with a dollar, it was a fixed exchange rate system which was in harmony with the Bretton Woods pegged system and subsequently after the collapse of the system Nigeria later in 1986 adopted a deregulated system by allowing naira to find its way in the currency market - the floating exchange rate 2.1.4 Importance of exchange rate Exchange rate remains a very important variable for the attainment of macroeconomic objectives. This is because it has effect on macroeconomic variables. It facilitates international transactions and hence, has implications on other price variables and the general price level. The important role it plays makes governments to take active interest in it.
When there is inflation, the currency of China fell, the interest rate was lowed, and the investment revenues have more than the inflation rate. This situation encourages people to spend their money rather than save or hold wealth in the form of money as the value of savings have become down and down and the value of the investments in physical assets are more noticeable. Nonetheless, in the certain extent, the investments in some fixed income products, liked bonds devalued along with inflation. Therefore, people were more willing to use their money on purchase hedging products such as gold or real estates. As a result, savings from the society dropped and it then affect the economic capital formation.
In April 2009, MAS re-centred the exchange rate policy band to the domineering level of the S$ exchange rate, causing the S$ to depreciate slightly against the Euro, USD and Yen. However, it appreciated against regional currencies, clearly reflecting strong fundamentals of the Singapore economy. Fiscal Policy
On the off chance that creation in an economy builds on account of the expanded cash supply, the estimation of a unit of money may additionally expand, despite the fact that there is more coin accessible. For instance, if a country's economy were to goad a huge expands in yield at a rate in any event as high as the measure of obligation adapted, the inflationary weights would be evened out. This can just happen if part banks really give the abundance cash out as opposed to storing the additional money. Amid times of high monetary yield, the national bank dependably has the choice of restoring stores to larger amounts through raising premium rates or different means, adequately turning around the moving steps
When a country´s currency goes either up or down (increase or decrease) because of financial pressure (which can be caused by unpredictability from trading), and when this happens, is time for the central bank to step in to stabilize the situation and prevent it from becoming a crisis. This intervention can cause a currency value to increase or decrease; this is something that affects imports and exports. When the exchange rates are affected because of intervention and causes a currency to become stronger, this promotes imports over exports and vice versa. For example, if the central bank believes that current interest rates should be raised slowly during the next several months in order to slow the growth of the economy and prevent a resurgence of inflation, then a FOREX intervention to lower the value of the domestic currency would result in increases in the money supply and a decrease in interest rates, precisely the opposite of what the central bank wants to
No, the new monetary policy which is negative interest rate did not project positive outcomes. There are few reasons why Negative Interest Rate Policy (NIRP) is ineffective in Japan. The major reason that Japan cannot achieve positive outcomes like europe is due to the aging population in Japan. For instance, Japan is experiencing ‘super aging’ society, not just in rural area but also in urban area. When Japan adopted Negative Interest Rate Policy (NIRP), this causes too much of money flow into the market and this will indirectly increase the price level of goods and services.
In January 1, 1994, official RMB exchange rate and foreign exchange market exchange rate, China began to implement based on market supply and demand and have managed exchange rate system. In the beginning, the official exchange rate to 33.3% declines in one-off. However, because the Chinese government for consideration is consistent with the foreign exchange rate at first, out of control, in fact, the range of the devaluation of the RMB exchange rate is only 6.7%. After that, the RMB exchange rate has long been overvalued situation has improved, exchange rates tend to be more reasonable, from then on, changed the long-term decline rate. From 1994 to the end of 1997，The RMB against the dollar exchange
The main factor is the relative change in the exchange rate or price changes in currency purchasing power across countries; compared with the exchange rate at the balance of the period, when the ratio of the two changes in purchasing power. Currency exchange rate between the two countries must be adjusted. The relationship between absolute PPP and relative PPP, if the absolute purchasing power parity is applicable, the relative purchasing power parity is necessarily true, because the price index is two points in the ratio of the absolute level of prices. Alternatively, if the relative purchasing power parity is applicable, absolute purchasing power parity is not necessarily true. PPP theory is highly applicable for some reasons.