(Macro) Episode 33 - Exchange Rates

How do currency values rise and fall? Why would a country want to manipulate the value of its own currency?

Category:

Education

Tags:

• economics
• currency
• exchangerate
• exchange_rate
• FX
• foreign_exchange
• markets
• appreciation
• depreciation

[Xenu]

Is there a correlation between the amount of securities a government sells and the value of its currency? Who sets the rate of interest on securities? Is that also the Federal Reserve? Does the interest rate on securities have any effect on other interest rates?

[mjmfoodie]

@Xenu That's a lot of questions!! Yes, because the securities market affects the money supply (see the video on Monetary policy), it affects both the currency value and the market interest rate. Most rates are market (i.e., supply and demand) driven, but some, like the discount rate in the US, are set directly by the Central Bank.

[liebstandarteadolf]

The Chinese currency had been pegged before it became a significant net exporter. It was initially for the purpose of simplying monetary control I read.

Besides, China has a import-re-export economy, the added value isn't much compared to that by other countries. In order to level the US's balance of trade purely by forcing up the RMB, the appreciation will be prohibitively and unnecessarily large.

[mjmfoodie]

@liebstandarteadolf Hopefully I don't come off as viewing the practice of pegging as right or wrong, just stating why it is that the US complains about it...? Thanks for the comment.

[sirellyn]

Whoa whoa. This video assumes the appreciation or depreciation of a currency is only due to it's demand, using that assumption it assumes that appreciating dollars make others buy less goods.

MOST of the time, appreciation/depreciation with currency is from new money creation rate from the central bank. When this is the case (as it mostly is) a cheaper currency buys less of what it did before. There's actually more incentive for appreciation. Money itself gains value.

[mjmfoodie]

@sirellyn I hope that's not the impression that I gave -- I had hoped it was clear that the equilibrium price of a currency is market-driven (i.e., demand AND supply)? In fact, when I talk about a country manipulating the value of its own currency, that definitely comes from the supply side . . .

[WeAreAirborne]

Ignore this comment. This is just to prove to my ECON-1 teacher that I watch things she tells me to watch.

[bladewolf390]

@FreeSoul790 central banks interest rate can affect both private bank and the Forex. like the OMO if the central banks would increase it's rates to incr. the demand for T-bond can, which decrease the money in an economy which increase its value in the FOREX. now the private banks only relay on corp. bond rate and corps. base their rates on CB's rates. i am not sure about it but i think its right and my explanation is not complete due to the limit of char. here hope i have helped even a little

[uyenle57]

Thank god you saved my live.

[FreeSoul790]

thank you for these videos. I have 1 question... do interest rates (in general) set by central banks, or private banks, directly impact the Forex market?

[shelton701]

i wish i could give you my tuition! my macro professor was horrible this year! keep up the good work!

[mrmuhumuza1]

I LOVE MJMFOODIE!!!!

Explains everything soo well, unlike my uni lecturers lol :)

God Bless yaaa :D

[StephenEmmanuel]

grear video --- from a cfa and mba grad .. cheers!

[OpenTheTrollGate]

ASSUMING THAT CHINA MANAGE ITS CURRENCY TO HAVE A TRADE SURPLUS WITH THE REST OF THE WORLD IS DOWNRIGHT STUPID. LOL