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    Export competitiveness by devaluing currency

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    Many Asian governments have attempted to promote their export competitiveness by holding down the values of their currencies through foreign exchange market intervention.

    a. What is the likely impact of this policy on Asian foreign exchange reserves? On Asian inflation? On Asian export competitiveness? On Asian living standards?

    b. Some Asian countries have attempted to sterilize their foreign exchange market intervention by selling bonds. What are the likely consequences of sterilization on interest rates? On exchange rates in the longer term? on export competitiveness?

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    Solution Preview

    a. What is the likely impact of this policy on Asian foreign exchange reserves? on Asian inflation? on Asian export competitiveness? on Asian living standards?

    In order to hold down the value of their currencies, Asian central banks must buy up foreign exchange in the market. The result is increased foreign reserves and an expanded ...

    Solution Summary

    The solution discusses different aspects and impacts on the Asian foreign exchange market.

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