Essay about Final 2 Hojjat

Submitted By Freislyn24
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Pages: 6

Review Sheet- Final-EC.400
Tahereh Alavi Hojjat

1. What is foreign exchange market?

Market where foreign exchange currencies are being traded
Biggest market of all 5 trillion
- Over the counter market -network of telecommunication - 2 tier (retail and wholesale market)
- Participants (multinational corporations, international banks, dealers, customers, central banks)
- Spot market- delivery immediate
- Forward market- future delivery of exchange

How foreign exchange rate is determined? *****

What factors contribute to stronger exchange rate?

State of economy- appreciation of currency
Interest rate increase inflation decrease productivity decrease- higher inflation- appreciation export/ import

2. What are economic consequences of a weaker dollar? ***
- Imports increase
- Job losses (1.6 million in manufacturing sector between 2001-2008)
- Depress wages
- Middle class suffers

Are there any benefits of having a weaker dollar? ****

China is the 2nd largest economy in the world and American companies are operating in china.
25 % of corporate profit comes from china.
American portfolio is benefiting from Chinese economic growth.
Consumers are benefiting from low price
American and Chinese products are complimentary not competitors
Trade with china is creating betters jobs in the U.S.

3. China currency (renminbi or Yuan) has been undervalued, some arguing that U.S economy is benefiting from that, not all agree. Please explain is China currency is undervalued and what should be done about it.

Yes, manipulating their exchange rate, artificially keeping the yuan at a low value: exports increased imports decreased, leads to a higher trade surplus in china and higher GDP and create more jobs.

No, we don’t know the true value of the yuan. Might be between 10-14% of undervalue. If the US imposes any trade sanctions against china, the middle class would be the ones who hurt the most in the US. *****??????

4. What can replace a global currency? What is the issue with each selection?

-Tie dollar with the euro
-Use SDR (special drawing right)- value is not based on the dollar, but instead based on 4 different currencies. If the value of the dollar increases, the value of the euro will increase, and the basket remains stable so the prices remain stable.
-Gold- gold price is super volatile
-GDP link bonds- issue bonds and value of bonds changes based on GDP of the country issuing the bond. If the US economy is in expansion, the value of the bonds increases. If the economy is in a recession, the value of the bonds decreases.

5. What are the trends for 2050 on major global issues?

Population and GDP- The relative demographic weight of the worlds developed countries will drop by nearly 25% shifting economic power to developing nations.
Aging population- The developed countries labor forces will substantially age and decline constraining economic growth in the developed world and raising demand for immigrant workers.
Youth and Islamic movements- Worlds population growth will increasingly be concentrated in todays poorest, youngest, and most heavily muslim countries.
Urbanization- Most of the worlds population will become urbanized, with the largest urban centers being in the worlds poorest countries, where policing, sanitation, and health care are scarce.

6. Do you see more prospects for terrorism in the future? Explain your reasoning. *****

7. What is the trend for economic resources? Explain your reasoning.

8. What are reasons for higher global price of food? What are the options?

9. What are the reasons for high price of energy? What are the alternatives? Evaluate each please.

10. What are trends for population, labor force, GDP for both developing and advanced countries? Explain. What are the solutions for any potential problems regarding each factor? Population/ labor force
Health care costs increase
Declining labor force- productivity decreases and then gdp decreases.
Increased demand for