You are a UAE citizen (the currency of your country is the dirham) and you are engaged in large transactions with Greece (the currency of Greece is the euro), but you do not invest in the Greek stock and real estate markets. Last November (2021) you planned visit Greece on August 2022. In fact, you buy from Greece tourism services, and olive oil and feta cheese from the supermarket in your neighborhood.

Suddenly, the economic situation in UAE changed in June 2022 and the Central Bank of the UAE announces an increase in the inflation rate and an increase in the short-term interest rate as a response of the Central Bank of the UAE? However, the Ministry of Finance of the UAE increased your salary to keep constant your standards of living and the purchasing power of your income? Do you cancel your trip to Greece and stop buying Greek delicacies? 

(Hint: First, identify the impact of the 3 facts on the demand of euro. Then consider what kind of transactions are you involved with Greece: are you engaged more in trade transactions or more in capital flows? )

Answer rating: 100% (QA)

No I do not cancel my trip to Greece and stop buying Greek ... View the full answer