Term paper on Macroeconomics Theory

by | Sep 15, 2021 | Homework Help

You will prepare and submit a term paper on Macroeconomics Theory. Your paper should be a minimum of 1250 words in length. Foreign exchange rate is the price of one currency in terms of another currency. BOP has direct relation with the foreign exchange market as the spending of the consumer depends on the value of currency in other countries. Under the free-floating currency regime (McGregor) the balance of payment depends highly on the forces of supply and demand. In this free-floating regime, the price of the currency automatically adjusts according to the requirement which equals the supply and demand of the currency. This shows that in this market conditions, price automatically is in equilibrium in the balance of payment. There is no intervention by the government due to which the outcomes are automatically achieved by counteracting between both the current account and the capital account. This market is also termed as “self-correcting market” which fluctuates continuously based on the changing market conditions. Under the fixed-rate currency regime (Bized), intervention by the government is mostly seen to regulate the exchange rate. The price in this exchange rate is not automatically adjustable as compared to the floating exchange rate. The government has to intervene to adjust the value of foreign currency to the country’s currency.

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