Managerial Economics - Exchange rates can be understood

Managerial Economics

Exchange rates can be understood as the price of one currency in terms of another currency. They affect the macroeconomic performances of countries since the exchanges have impact on international trade and flows of international investment. Exchange rate regimes (systems) are the frame under which the price of the exchange rate is determined. There are several types of exchange rate systems. Based on this background, thoroughly respond to the following questions.

Assignment Questions

1. Compare and contrast how exchange rates are determined under the fixed exchange rate system, floating exchange rate system, and pegged exchange rate system. Be sure to discuss the advantages and disadvantages of each system.
2. Consider the pros and cons of free trade.
   1. List two specific ways that free trade positively contributes to the improvement of economic well-being in the U.S. economy and stimulates long-term economic growth. Explain.
   2. List two specific ways that free trade negatively contributes to the U.S. economy and long-term growth. Explain.
   3. In your opinion, do the pros outweigh the cons? Why or why not?
3. Why are U.S. exports and imports of goods and services based on the principle of comparative advantage of trade and not absolute advantage? Explain.
   1. Why do countries impose trade restrictions on goods and services they import from other countries?
   2. What are the pros and cons of trade protectionism like tariffs on the U.S. economy?
4. What are the impacts of currency devaluation and revaluation on the international trade?
   1. What is currency (exchange rate) war?
   2. How does it affect trade between countries?
   3. What are the impacts of currency manipulations on the U.S. trade?