Appreciation and Depreciation of Currency in Value along with an example.

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Chapter 36, Problem 10E

To determine

Appreciation and Depreciation of Currency in Value along with an example.

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When a country's currency appreciates, is this generally good news or bad news for a country's consumers? Is it generally good or bad news for the country's businesses? Explain your reasoning - try to use examples.

Using the concept of "carry trade," explain how a decrease in U.S. interest rates could affect the EUR/USD exchange rate. Given this change in exchange rate, how would firms and customers be affected? professors note Supply and demand for currencies can be tricky, not least due to the confusing idea that what we are buying or selling is money itself! Once you can wrap your mind around the idea that money is what is being obtained for other money, the next set of questions relates to what would or could make the price of one money change in terms of another. To this effect, I'd recommend a primer from Investopedia: Six Factors That Influence Exchange Rates. For your consideration in responding to this post, I suggest reading on how the Carry Trade has the capacity to magnify systemic risk.

What are the three categories of transactions in the balance of payments? Give an example of each.