--%>

Implications of fixed and flexible exchange rate regimes

Explain “balance of payments” identity and discuss some of its implications under the fixed and flexible exchange rate regimes.

E

Expert

Verified

Balance of payments identity states that the joint balance on the current and capital accounts must be same as its size, however opposite in the sign, to the change in the official reserves: BCA + BKA = -BRA. Under the pure flexible exchange rate regime, the central banks never engage in the official reserve transactions. Hence, overall balance should balance, i.e., BCA = -BKA. Under fixed exchange rate regime, though, a country may have overall BOP surplus or deficit as central bank can accommodate it via the official reserve transactions.

   Related Questions in Financial Accounting

  • Q : International portfolio for buying

    Why it is easier for an investor willing to diversify his portfolio internationally for buying depository receipts instead of actual shares of the company?

  • Q : Measures to avoid financial crisis In

    In integrated world financial market, financial crisis in country is rapidly transmitted to the other countries, resulting in the global crisis. State some of the measures would you propose in order to avoid the recurrence of the Asia-type crisis.

  • Q : Prepare adjusting journal entries The

    The following information for the month of December 20x6, with respect to cash activities, was gathered by Tressa Ltd.’s bookkeeper. Cash balance per books, December 1 $ 3,700

    Q : What do you mean by the term turnover

    What do you mean by the term turnover?

  • Q : What is the equivalent rate A bank

    A bank quotes an interest rate of 13.5% per annum with quarterly compounding. What is the equivalent rate with (a) continuous compounding and (b) annual compounding?

  • Q : Define the term Accounts Receivable

    Accounts Receivable: The money owed by customers (that is, individuals or corporations) to other entity in exchange for services or goods that have been employed or delivered, however not yet paid for. Receivables generally come in the form of operati

  • Q : Concessionary loan with APV model State

    State nature of the concessionary loan and explain how it is handled within the APV model?

  • Q : What bid price per widget should you

    You are required to submit a bid to supply 200,000,000 widgets per year to the State of Illinois for the next five years. Your company has an idle tract of real estate that cost $1,500,000 ten years ago; if your company sold the land

  • Q : Benefit of Electronic Funds Transfer

    Illustrate the benefit of Electronic Funds Transfer?

  • Q : International financial management

    Explain the importance in studying the international financial management?