[...]... needs of business firms, governments, individuals, and international organizations and institutions An exchange rate is the price of one currency in terms of another currency; it is the relative price of the two currencies The initial and foremost roles of money are to function as a common measure of value and the media of exchange to facilitate the exchange of commodities of different attributes When the. .. an exchange rate quote against a common currency e.g., if the common currency is the euro, and the exchange rates of the euro vis-à-vis the US dollar and the British pound are available at €0.8788/$ and €1.4373/£ Then the cross rate refers to the exchange rate between the US dollar and the British pound that should be equal to €1.4373/£ over €0.8788/$ or $1.6355/£ In the point of view of the euroland... increase in the exchange rate indicates depreciation of the domestic currency or appreciation of the foreign currency, since one unit of foreign currency can purchase more units of the domestic currency Similarly, a decrease in the exchange rate means that one unit of the foreign currency can purchase a smaller number of units of the domestic currency, so the domestic currency appreciates and the foreign. .. Table 1.1 is an example of foreign exchange rate quotations Each of the rows shows the direct quotations for the country/region and each of the columns shows the indirect quotations for the country/region e.g., the second to fourth cells in the first row tell how many units of the US dollar can be exchanged for one unit of the euro, the British pound and the Japanese yen respectively These figures are direct... unfolded and examined in the later chapters of this book 1.1 Foreign Exchange Rate Quotations and Arbitrage Foreign exchange rates can be quoted as the number of units of the home or domestic currency per unit of the foreign currency, or as the number of the foreign currency units per domestic currency unit Moreover, since more than one pairs of currencies are usually transacted on the foreign exchange. .. from the international monetary history can be helpful to the foreign exchange rate regime decision, the implementation of foreign exchange policies and the attainment of policy objectives 2.1 Exchange Rate Regimes The exchange rate can be totally flexible or completely free to float on the foreign exchange market on the one hand, and fixed or pegged to one of the major currencies or a basket of currencies... selective quantitative indicators The degree of flexibility of the exchange rate is a function of the band width Bands can be either symmetric around the crawling central rate or asymmetric with different upper and lower bands The commitment to maintaining the exchange rate within the band imposes constraints on monetary policy, the narrower the band, the lower degree of independence monetary policy... a range of other currencies on September 17, 2003 The source of both tables was the Financial Times The fourth column of the tables shows bid-ask spreads or bid-offer spreads while the second column is the midpoint or an average of the bid and offer rates at the time when the market was closing In Table 1.2, for example, the closing mid-point for the Norwegian kroner was 8.1873 and the bid-offer spread... are direct quotations from the point of view of the US as the domestic country The first, second and fourth cells in the third column report how many units of the US dollar, the euro and the Japanese yen are required respectively in exchange for one British pound These figures are indirect quotations from the point of view of the UK as the domestic country Table 1.1 Foreign exchange rate quotations (September... quotation, the exchange rate is expressed as the number of units of the home or domestic currency per unit of the foreign currency An indirect quotation is one that the exchange rate is expressed as the number of the foreign currency units per domestic currency unit For example, the exchange rate between the US dollar and the euro was quoted on September 19, 2003 in Frankfurt as €0.8788/$ and $1.1380/€ The . The Building Blocks of the Model and the Evolution Paths of the Exchange Rate and the Price 149 8.2 Adjustments of the Exchange Rate and the Price and. alt="" The Economics of Foreign Exchange and Global Finance Peijie Wang The Economics of Foreign Exchange and Global Finance With 71 Figures and 75 Tables 12 Professor