Question

1. What controls the short-term interest rate in the United States?

2. Jerome Powell, Fed Chairman, said that 1) an inflation risk is moderate; 2) the economy is doing well, and 3) a decision can be made in this week's Fed committee meeting on short-term interest rate. Assume the current short term interest rate is 1%.

3. After the the Fed chairman announced a quantitative easing, what should you do if you do not want to see the Chinese currency to appreciate in value against the U.S. currency? Why

Answer 1

1) In the U.S., interest rates are determined by the Federal Open Market Committee.

Short-term interest rates are the rates at which short-term borrowings are effected between financial institutions or the rate at which short-term government paper is issued or traded in the market.

Short-term interest rates are mostly based on three-month money market rates where available.

2) when the inflation rate is normal and economy doing very well most probably Fed committee increase the short term deposits and borrowed interest rate to appreciations in u.s currency and to give more boost to the market. Maybe by 15 basis point so, new short term interest rate will be 1.15.

3) if i do not want to see the Chinese currency to appreciate in value against the U.S. currency, do the following steps.

a) stop or minimized the import from China.

b) Try to maximize the export to china.

c) minimize the use of china product so import from china will automatically down.

d) Manufacturer the product we important from china in us. And use the u.s products more.

e) Overall minimized the trade deficit between u.s and china trade.

Thank you.