Exchange rate And Purchasing Power Parity Theory Discussion

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Question Description


This assessment has two parts. Be sure to complete both parts before submitting.

Part 1
  • Analyze the concept of exchange rate.
    • Explain how the dollar price of euros is determined.
    • Identify a factor that can increase the dollar price of euros.
    • Identify a factor that can decrease the dollar price of euros.
    • Explain why a rise in the dollar price of euros means a fall in the euro price of dollars.
  • Explain the purchasing power parity theory of exchange rates, using the euro-dollar exchange rate as an example.
Part 2
  • Explain why a quota is more detrimental to an economy than a tariff that results in the same level of imports as the quota.
    • What is the net outcome of either tariffs or quota for the world economy?

Organize your assessment logically with appropriate headings and subheadings. Support your work with at least 3 scholarly or professional resources and follow APA guidelines for your citations and references. Be sure you include a title page and reference page.

Additional Requirements

  • Include a title page and reference page.
  • Number of pages: 3–4, not including title page and reference page.
  • Number of resources: At least 3.
  • APA format for citations and references.
  • Font and spacing: Times New Roman, 12 point; double-spaced.


Exchange rate And Purchasing Power Parity Theory Discussion

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Tutor Answer

School: Cornell University


Running head: EXCHANGE RATE


Exchange Rate
Student Name
Due Date
Faculty Name



Part 1: Exchange Rate
An exchange rate is the worth or estimation of a nation's currency versus that of another
country or economic region. Majority of exchange rates are free-drifting and will rise or fall
dependent on free market activity in the market. Exchange rates are the measure of one currency
you can trade for another (Black, 2015). For instance, the dollar's conversion rate discloses the
value of a dollar in a foreign currency. Majority of the exchange rates are controlled by the
foreign exchange market, or forex. These rates are termed as flexible exchange rates. Hence,
trade rates rise and fall irregularly as time passes.
The value of money is dictated by its demand, much the same as the value of products
and services. There are different ways to quantify the value of the dollar. The emblematic
reciprocal dollar to euro currency exchange is the exchange rate that pulls in the most
consideration (Parlapiano, Alexeev & Dungey, 2015). In spite of the relative significance of euro
to US dollar two-sided exchange links, exchange with the UK is, to some degree, more
imperative for the Eurozone that is exchanged with the US. The international real interest rate
differential is used to determine the dollar price of euros. When using this method to determine
the dol...

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