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An exchange rate is how much of a given nation’s currency you can buy with a different nation’s currency. If you purchase foreign goods or travel abroad, you may need to convert your currency ...
Why might a country prefer a smooth exchange rate with low volatility and be reluctant to float the currency? A free floating exchange rate would increase foreign exchange volatility. The volatility might be very large during crisis period. This could cause serious problems, especially in emerging economies. [10]
The expected benefit of currency substitution is the elimination of the risk of exchange rate fluctuations and a possible reduction in the country's international exposure. Currency substitution cannot eliminate the risk of an external crisis but provides steadier markets as a result of eliminating fluctuations in exchange rates. [2]
4. Speculation. As investors try to earn a profit, their speculation on a currency’s value could cause the exchange rate to change. Suppose investors believe a nation’s money is overvalued.
CBOE Volatility Index (VIX) from December 1985 to May 2012 (daily closings) In finance, volatility (usually denoted by "σ") is the degree of variation of a trading price series over time, usually measured by the standard deviation of logarithmic returns. Historic volatility measures a time series of past market prices.
Exchange Rates Matter If You Travel — and If You Don’t. Exchange rates measure the value of one country’s currency against that of another. Based on March 12, 2021, exchange rates, you’d ...
Another real-exchange-rate anomaly was documented by Mussa (1986). [3] In this paper Mussa documented that industrial countries which moved from fixed to floating exchange rate regimes experienced dramatic rises in nominal-exchange-rate volatility. Since the volatility increases much more than what can be accounted for by changes in the ...
A free floating exchange rate increases foreign exchange volatility. Some economists believe that this could cause serious problems, especially in developing economies. Those economies have a financial sector with one or more of following conditions: high liability dollarization; financial fragility; strong balance sheet effects