Using exchange rate information from the Federal Reserve cre

Using exchange rate information from the Federal Reserve, create a line chart that tracks changes in the US dollar exchange rate with the Chinese Yuan, the Euro, and the Mexican peso from January 2008 through the current year. Include a data point for each available month over these years. If there are multiple data points available in a month, use the data closest to the beginning of the month. After creating the line graph, copy and paste it into a Word document. Compose an essay that discusses the patterns demonstrated in your graph and the trade implications of these patterns.

Solution

High inflation means the prices in the economy are relatively very high and has a negative effect on forex rate.High inflation negatively impact other countries , high interest rate means low interest rate which leads to capital flight because investor do not like lower returns,other economic factoors also impact investors decision. For example political unstability or a sudden devaluation investor will move away from the currency .High inflation means a rise in productivity and growth because there is high aggregate demand and output employment increases, high income would always lead to rise in inflation.

Under fixed exchange rate monetary policy do not allow currency to deviate from the stable exchange rate to a basket of currencies.The bank will buy and sell its own currencies against the pegged currency.Leads to appropriate money supply , fluctuation in inflation and deflation accordingly.Floating exchange rate would work according to market fluctuations ,at low currency demand import will be expensive which means it creates more domestic demand creating more jobs and employment and auto correction mechanism in the market.