1. On May 17^th 2022, the Financial Times produced an article on the effects of the US interest increases on developing and emerging markets. Below you have a fragment of that article.

"With so much going on in the global economy and financial markets, the dollar's strong recent appreciation has attracted less attention than what would have been expected given the historical experience.

On paper, the appreciation of the currency of the world's most resilient economic performer should help adjustments in the global economy... But in current conditions, there are hazards in a rapid rise in the dollar for both the wellbeing of an already wobbly global economy and for unsettled financial markets."

In this exercise you are asked to consider the effects from the point of view of a developing economy.

Question:

Using a correctly labelled graph of the foreign exchange market in the developing economy show how this decision by the US Federal Reserve Bank to increase interest rate affects the value of the currency of the developing country in relation to the US dollar.

Answer rating: 100% (QA)

Effects on the Foreign Exchange Market Graph Setup XAxis Quantity of Developing Countrys Currency eg ... View the full answer