Essay on Chapter6 Final

Submitted By Sirotorn-Sumpunkulpa
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Pages: 2
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Chapter 6: Final Project

Monitoring Central Bank Intervention

1. How can your business be affected if the Fed (US) attempts to strengthen the dollar in the foreign exchange market?
a. If the Fed (US) attempts to strengthen the dollar our business will find it harder to compete in foreign market because there will be lower priced of foreign goods. However, this can keep inflation low due to lower prices on foreign products or services.

2. If the Fed (US) decides to weaken the dollar, how will your business be affected?
a. If the Fed (US) decides to weaken the dollar our business can find it easier to sell our goods in foreign market, it tend to increase exports and decrease imports, also decrease unemployment rate. Moreover, there will be less competitive to lower the price. However, it can cause higher inflation due to decrease in foreign competition, also it will be harder for our business to expand into foreign markets since there will be higher prices on foreign products/services.

3. How can indirect central bank intervention affect your business even if there is no impact on exchange rates?
a. Exchange rates are partially driven by relative interest rates of the countries of concern. When US’s interest rates decline, there is a smaller flow of funds to be exchanged into dollar because the interest rate is not as attractive. If they are expected to reduce their rates, they will not attract more capital, which can lead to less capital flows in the future, therefore, this could reduce their value. Other factors are including inflation, income
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