Discuss how the United States exchange rate would react to the nominal rates, and the real interest rate.
100 words or more© BrainMass Inc. brainmass.com October 25, 2018, 9:29 am ad1c9bdddf
The government influences nominal interest rates through fiscal policy and monetary policy. When the nominal interest rate increases there are more savings by the people, and businesses tend to invest less. However, domestic assets become more attractive and foreign funds flow in to invest in the United States. This ...
Impact of interest rates on US foreign exchange rate is explained in a structured manner in this response. The answer includes references used.
Exchange Rate Considerations
Please help me address the following case:
Mr. Swanson has expressed confusion about how foreign exchange rates will affect Content Cow Dairy if it expands to international markets. You tell Mr. Swanson that he has raised a good question and that you will draft and send him a report with information on this topic.
In your report, include the following:
- Compare/contrast the risks and benefits of pricing goods in U.S. dollars or pricing goods in local currency when selling in a foreign market.
- Explain rate parity theory and how it is used to predict future exchange rates.
- Calculate the current Forward Exchange Rate for the United States and Egypt. (Show your calculations).
- Explain the relationship between monetary policy, interest rates, and exchange rates.
- Briefly introduce other factors that influence exchange rate fluctuations. Address whether any of these are a factor when looking at the future exchange rate between the United States and Egypt.