The costs and benefits of trade are subjects that elicit a lot of interest in most countries. However, most economists agree that the advantages of international trade probably outweigh its disadvantages. Below are the main benefits and costs associated with…

Gross domestic product (GDP) measures the market value of goods and services from production factors such as labor and capital in a country within a given period of time. On the other hand, gross national product (GNP) measures the market…

There are many effects of exchange rates on countries’ international trade and capital flow. Most of them are listed below. Changing Prices of Currencies Shifts in the supply and demand of products change the prices of those products. Similarly, constant…

Almost every exchange rate regime has its flaws, virtues, and particularities. Since exchange rates in different currencies fluctuate due to the influence of market forces, some nations peg their currencies on other currencies. Others, still, have market-determined floating rate regimes….

The interest rate difference between two countries affects the spot and forward rates. Using a single period analogy, an investor who has funds to invest in treasury securities, has two alternatives:

Forward Quotations The points on a forward rate quote are the differences between the spot exchange rate quote and the forward exchange rate quote. These points are scaled to relate to the last decimal in the spot quote. It is…

Spot Exchange Rates It is possible to back out the cross rates given two exchange rates involving three currencies. Considering a foreign exchange market with the exchange rate between the South African rand and the Chinese yuan, this market can…

Spot market currencies are exchanged for immediate delivery in the forward rate market, whereas contracts are made to sell or buy currencies for future delivery. For example, when a company in the U.S. buys goods from England valued in British…