Exchange rate overvaluation

{}Posted in2023/2/24 19:32:28 | 6Browse

ExchangeRateOvervaluedWhat ForexrebateforExness Forex rebate for Exness forexcashrebate cashbackforexexness Exchange rate overvaluation refers to the exchange rate of a countrys currency is higher than its own should have the value of the application of exchange rate overvaluation In the free foreign exchange market, the exchange rate is determ forexrebatesed by the supply and demand of foreign exchange, there is generally no overvaluation phenomenon, while in the official foreign exchange agency to set the exchange rate, there will be for some purpose and deliberately The exchange rate overvaluation can actually be expressed as the appreciation of the national currency is higher than the difference between its domestic cashback forex and foreign inflation, that is, the exchange rate of the national currency is higher than the relative purchasing power parity In accordance with the relative purchasing power theorem, due to the different degrees of inflation in each country will correspondingly reduce the real purchasing power of each country, therefore, the exchange rate should also be correspondingly in accordance with The proportion of inflation in each country deviates from the old parity If the country does not adjust the old parity in accordance with the inflation of the two countries, but uses a price index lower than the national inflation rate to calculate the exchange rate, there will be an overvaluation of the national currency exchange rate Example analysis of exchange rate overvaluation For example, inflation occurs in the United States and Japan, the inflation of the United States so that the price index from the original 1OO% to 200%, while the Japanese Inflation so that the price index from the original 100% to 140%, therefore, the ratio of the price index of the two countries should be: Suppose the original exchange rate of the U.S. dollar to the yen: 1 U.S. dollar = 180 yen, then the exchange rate after the emergence of inflation should be: 1 U.S. dollar = 180 × 70% = 120 yen If the United States to lower than its inflationary price index (such as for 175%) to calculate the exchange rate The ratio of the price index is:, then the exchange rate is: 1 dollar = 180 × 80% = 144 yen This shows that the United States overvalued its exchange rate 18 yen exchange rate overvaluation of domestic exports in foreign currencies to increase the price of goods, so that exports are less competitive in the international market, which is not conducive to exports; on the contrary, so that the price of foreign goods expressed in domestic currency is low, encouraging imports, the balance of payments In the early 1980s, the United States had a huge deficit in U.S. trade due to the overvaluation of the dollars foreign exchange rate However, some developed countries often deliberately overvalue their currency exchange rates in order to maintain their currencys world dominance, such as the United Kingdom after World War I and the United States after World War II In addition, developed countries also plunder the resources of developing countries through exchange rate overvaluation This is because Most imports and exports, capital flows in and out of developing countries are denominated in the currencies of some developed countries such as the U.S. The overvaluation of exchange rates by developed countries allows them to exchange less real resources for more real resources of other countries

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