A theory of exchange rate modeling
The article examines exchange rate modeling for two cases: (a) when the trading partners have mutual interests and (b) when the trading partners have antogonistic interests. Exchange rates in world markets are determined by supply and demand for the currency of each state, and states may control the exchange rate of their currency by changing the interest rate, the volume of credit, and product prices in both domestic and export markets. Abstracting from issues of production and technology in different countries and also ignoring various trade, institutional, and other barriers, we consider in this article only the effect of export and import prices on the exchange rate, we propose a new criterion of external trade activity: each trading partner earns a profit which is proportional to the volume of benefits enjoyed by the other partner. We consider a trading cycle that consists of four stages: (a) purchase of goods in the domestic market with the object of selling them abroad; (b) sale of the goods in foreign markets; (c) purchase of goods abroad with the object of selling them in the domestic market; (d) sale of the goods domestically.
- Sponsoring Organization:
- USDOE
- OSTI ID:
- 457582
- Journal Information:
- Cybernetics and Systems Analysis, Vol. 31, Issue 1; Other Information: PBD: Sep 1995; TN: Translated from Kibernetika i Sistemnyi Analiz; No. 1, 170-176(Jan-Feb 1995)
- Country of Publication:
- United States
- Language:
- English
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