Question

In: Finance

Provide reasoning for why highly inflated countries tend to have weak home currencies

Provide reasoning for why highly inflated countries tend to have weak home currencies

Solutions

Expert Solution

Highly inflator countries are reflecting that there is a very high rate of inflation in those countries which will be reflecting that the value of their currencies are lower because when the rate of inflation is higher, the buying price of the currency decreases and it would mean that the buying price of the currency is decreasing, it will be culminating into lower purchasing power of the currency, and it would be leading to depreciation of the home currency in respect to the foreign currency because foreign currency has not depreciated and it has remained uniform, Whereas, the home currency has depreciated and it will mean that the purchasing power associated with the home currency has gone lower and when the purchasing power of the home currency has gone lower, it is reflecting that the overall value of home currency has depreciated in context with the foreign currency.

Hence, the given statement is true, because when the currency will be highly inflated, it would mean that the overall value of the domestic currency will be lower in respect to the foreign currency.

jeff jeffy answered 2 years ago
Next > < Previous

Related Solutions

Why do highly inflated countries such as Brazil tend to have weak home currencies?
Why do highly inflated countries such as Brazil tend to have weak home currencies?
Average inflation rates tend to be higher in countries that have relatively weak judicial systems and...
Average inflation rates tend to be higher in countries that have relatively weak judicial systems and property rights (remember chapter 1 and the importance of secure property rights?). Why do you think this is the case? Would you expect these countries to have higher or lower national debt? Why?
Why will host countries and home countries intervene and promote FDI?
Why will host countries and home countries intervene and promote FDI?
Why will host countries and home countries intervene and promote FDI?
Why will host countries and home countries intervene and promote FDI?
1.Why do countries with less independent central banks tend to have higher inflation rates? Is it...
1.Why do countries with less independent central banks tend to have higher inflation rates? Is it possible for the central banks to increase output and reduce unemployment in the long run? In the long run, is the German model a good one? Explain why or why not. 2. In your opinion, what are the top three challenges in the global economy we face in the near future?
to provide a Keynesian theory for why home(foreign) countries increase government spending can increase the world...
to provide a Keynesian theory for why home(foreign) countries increase government spending can increase the world rate of interest? What are your assumptions in your conclusion?
Today more societies have increasing numbers of ethnic groups, and these groups tend to be highly...
Today more societies have increasing numbers of ethnic groups, and these groups tend to be highly stratified according to skin color, caste, ethnicity, religion, or language. This stratification increases the likelihood of strong group identification that can create conflicts, especially if other salient factors are present such as inequality, societal instability and unrest, prejudice, and discrimination. True False
Why home(foreign) countries increase government spending can increase the world rate of interest? Provide a Keynesian...
Why home(foreign) countries increase government spending can increase the world rate of interest? Provide a Keynesian story for why. What are assumptions in your conclusion?
You have to estimate the expected exchange rates between your home currency and the other currencies...
You have to estimate the expected exchange rates between your home currency and the other currencies of the major other countries that you deal with in terms of both imports and exports. The reason is that increases in the values of other currencies compared to the U.S. Dollar may impact your imports negatively, whilst it may on the other hand, be good for exports. To do this estimate, you obtain the following spot exchange rate information: £/$ 0.76918 AUD$/$ 1.38140...
Why is it that females tend to have lower accuracy for their EPD's?
Why is it that females tend to have lower accuracy for their EPD's?
ADVERTISEMENT
Subjects
ADVERTISEMENT
Latest Questions
ADVERTISEMENT