Economics SL

Chapters

Notes

Unit 1 - Intro to Econ & Core Concepts

Unit 2 - Microeconomics

Unit 3 - Macroeconomics

Unit 4 - The Global Economy

Economics SL

Unit 4 - The Global Economy

Managed Exchange Rates A Deep Dive into Currency Systems

449 words

3 mins read

Last edited on 5th Nov 2024

Floating & Fixed Mix: Think of it as the middle-ground between letting a currency's value float like a boat on open water (fully influenced by supply and demand) and tying it down with fixed rates. Imagine a boat tied with a long leash; it can move but not too far!
Central Bank Intervention: When the currency's value drifts too far from what's considered good, the central bank steps in, buying or selling its currency to keep things in check.
Sterilized Intervention: Like cleaning up the mess! The central bank makes sure changes in money supply are neutralized. It's like buying the currency without decreasing the reserves that banks have.

Undervalued Currency: Like a discount sale!
- Why?: To make exports cheaper, more competitive. Just like China did to boost growth! 🇨🇳
- How?: By purchasing dollars and selling local currency, or keeping interest rates low.
- Risks?: Trade frictions (your success might hurt your friend's business) and inflation danger. Think of it like eating too much candy—sweet but risky!
Overvalued Currency: Like premium pricing!
- Why?: Mostly used in import-substitution strategy. Imagine a country is trying to create its own toy industry, so it buys machines at low costs and prevents imported toys from coming in.
- How?: By buying its currency and selling dollars or keeping interest rates high.
- Downside?: Like making your homemade cookies too expensive, it might hurt the export sector, and farmers may earn less.

Undervalued Currency in Action: China kept its currency undervalued to boost exports. It's like having a sale at a store to attract more customers!
Overvalued Currency in Action: Some countries keep their currency overvalued to import machines cheaply and protect young industries. Imagine pampering a baby plant until it grows strong!

Dive deeper and gain exclusive access to premium files of Economics SL. Subscribe now and get closer to that 45 🌟

Economics SL

449 words

3 mins read

Last edited on 5th Nov 2024

Floating & Fixed Mix: Think of it as the middle-ground between letting a currency's value float like a boat on open water (fully influenced by supply and demand) and tying it down with fixed rates. Imagine a boat tied with a long leash; it can move but not too far!
Central Bank Intervention: When the currency's value drifts too far from what's considered good, the central bank steps in, buying or selling its currency to keep things in check.
Sterilized Intervention: Like cleaning up the mess! The central bank makes sure changes in money supply are neutralized. It's like buying the currency without decreasing the reserves that banks have.

Undervalued Currency: Like a discount sale!
- Why?: To make exports cheaper, more competitive. Just like China did to boost growth! 🇨🇳
- How?: By purchasing dollars and selling local currency, or keeping interest rates low.
- Risks?: Trade frictions (your success might hurt your friend's business) and inflation danger. Think of it like eating too much candy—sweet but risky!
Overvalued Currency: Like premium pricing!
- Why?: Mostly used in import-substitution strategy. Imagine a country is trying to create its own toy industry, so it buys machines at low costs and prevents imported toys from coming in.
- How?: By buying its currency and selling dollars or keeping interest rates high.
- Downside?: Like making your homemade cookies too expensive, it might hurt the export sector, and farmers may earn less.

Undervalued Currency in Action: China kept its currency undervalued to boost exports. It's like having a sale at a store to attract more customers!
Overvalued Currency in Action: Some countries keep their currency overvalued to import machines cheaply and protect young industries. Imagine pampering a baby plant until it grows strong!

Dive deeper and gain exclusive access to premium files of Economics SL. Subscribe now and get closer to that 45 🌟