Purchasing Power Parity and Carrytrade
Not what you're looking for?
I need help with the below questions:
1. How is the purchasing power parity of the Euro (€) relative to the Pound Sterling (£) and US Dollar ($) affected by a Greek exit from European monetary union? What is the impact on European and American debt, equity, and mortgage markets?
2. With regards to current economic conditions, what is the effect of a large carry trade on U.S. monetary policy?
Purchase this Solution
Solution Summary
This solution explains Greece exit, purchasing power parity and carry-trade. The sources used are also included in the solution.
Solution Preview
Solution:
1. The purchasing power parity of the Euro relative to the Pound Sterling and the US Dollar will be directly affected by a Greek exit from European monetary union (1). A Greek exit from the Euro will lead to contagion. Deposition will draw their deposit from banks in Ireland, Portugal, Spain, and Italy. These are the periphery countries. Foreign banks will refuse to extend credit to companies in these countries; foreign companies may withdraw from these countries.
If Greek exit is implemented, the Drachma has to be introduced in Greece instead of the Euro and there will be a sharp devaluation of the Drachma (2). This will make exports more attractive but the firms in Greece will not be able repay debt in euro. Default will affect the value of the Euro. The purchasing power of euro will ...
Education
- BSc , University of Calcutta
- MBA, Eastern Institute for Integrated Learning in Management
Recent Feedback
- "I read your comments, and thank you for this feedback. Do I need to find other studies that applied this methodology Ive used? That's where I'm stuck at."
- "Thank you kindly sir. "
- "Excellent and well explained. --Thank you kindly. "
- "Awesome notes. I appreciate you."
- "I have the follow-up project and I will assign that to you very soon. "
Purchase this Solution
Free BrainMass Quizzes
Economic Issues and Concepts
This quiz provides a review of the basic microeconomic concepts. Students can test their understanding of major economic issues.
Basics of Economics
Quiz will help you to review some basics of microeconomics and macroeconomics which are often not understood.
Elementary Microeconomics
This quiz reviews the basic concept of supply and demand analysis.
Economics, Basic Concepts, Demand-Supply-Equilibrium
The quiz tests the basic concepts of demand, supply, and equilibrium in a free market.
Pricing Strategies
Discussion about various pricing techniques of profit-seeking firms.