Suppose the Federal Reserve Ba

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Question:

Answer:

when the Federal Reserve Bank unexpectedly raises interest ratesin the United States then the foreign inflow will increased becauseof higher interest rate (higher return). It will increase thedemand of USD and now USD will appreciate against of othercurrencies.

We know the foreign exchange market is the biggest marketglobally in volume and Working 24*7 hours. it is very dynamic innature.The foreign exchange market is interconnected with eachothers. We also know the foreign exchange market is derive bymarket force (by demand- supply force). Its Complicated and largemarket can not work smoothly without technology. Technology play animportant role in foreign exchange market. The world’s foreignexchange market has became digitalized and work with the help oftechnology.  It is a communication network that links thecomputers of about millions and connected through satellite. Allthe functions like buying , selling, watching and implementingstrategy on right time is not possible without the PCs andsatellite. If we were eliminated-for example, no PCs or satellitetelecommunications from the foreign exchange market then it willnot function smoothly and will very difficult to interconnect itglobally. We were not get function of buying , selling, watchingand implementing strategy on right time is not possible without thePCs and satellite.

USD is the boss of global foreign exchange market and its shareis about 88%. All the central bank keep it as a reserve currency(over 60% of all known central bank foreign exchange reserves.) formaintaining their exchange rate. Gold and crude oil are alsomeasure in USD. The strong USA economy, high trade volume, highestgold reserve are the reason of to maintain its position as thedominant currency in the foreign-exchange market. If the euro isfully established then it will negatively affect the position ofUSD in global foreign exchange market but in little percentage notmore because the reason of o maintain its position as the dominantcurrency in the foreign-exchange market is verystrong.  The European Union’s GDP was estimated to be$18.8 trillion (nominal) in 2018, representing against of $20.58trillion USA in 2018. USA has 8,133.5 metric tons gold reserve thatis very larger than EU gold reserve.

A single currency wouldn’t be subject to exchange ratefluctuations because there would be no competing currencies toexchange against. A universal currency would lose its value as acommodity bought and sold on open markets and would have value onlyfor its worth in buying other commodities. Economy will notfunction properly, domestic will lose its value and global economywill damaged badly.

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