Impact of Monetary & Fiscal Policies on Economies
Foreign Policy
1) ∇i Exterior
This causes i > i*, leading to capital inflows into the EU (increasing demand for the Euro (€) and appreciating the exchange rate (E)).
- ∆E (€ appreciates, $ depreciates), the i-E curve shifts to the right (without changing our i).
- If € appreciates (∆E), the real exchange rate increases (Real exchange rate = E * p), leading to a decrease in net exports (∇XN) and a decrease in output (∇Y).
The current account balance worsens. If initially, XN is in equilibrium
Read MoreKey Accounting Principles and Financial Statements
Chapter 1: Fundamental Accounting Concepts
Internal Users: Marketing managers, production supervisors, finance directors, and company officers.
External Users: Investors and creditors.
GAAP (Generally Accepted Accounting Principles): A common set of accounting standards and procedures.
Cost Principle: Companies must record assets at their original cost.
Monetary Unit Assumption: Companies record only transactions that can be expressed in monetary terms.
Economic Entity Assumption: Activities of an entity
Read MoreAccounting System Essentials: Key Concepts and Principles
Accounting System Activities
The three main activities of an accounting system are identifying, recording, and communicating financial information.
Bookkeeping vs. Accounting
Bookkeeping usually involves only the recording of economic events. Accounting, however, encompasses the entire process of identifying, recording, and communicating these events.
Users of Accounting Information
Accounting information is used both internally and externally:
- Internal Users: Marketing, finance, HR, and management
- External
Uncovered Interest Rate Parity: Risks and Returns
Uncovered Interest Rate Parity (UIP): Actors and Exchange Rate Risk
Exchange Rate Strategies and Returns
Uncovered Interest Rate Parity (UIP) states that the expected returns on investments are subject to potential variations in exchange rates. Let’s examine two strategies:
- Buying domestic treasury plans:
- Return (Rb) = (1 + R), where R is the domestic interest rate.
- Buying foreign treasury plans:
- Initial return: Rb = 1/S * (1 + Re), where S is the spot exchange rate and Re is the foreign interest rate.
Key Accounting Principles and Financial Ratios
Accounting information helps users evaluate the amount, timing, and uncertainty.
Key Accounting Principles
- Relevance: Pertinent to the decision at hand.
- Predictive Value: Information is useful in predicting the future.
- Confirmatory Value: Information confirms expectations.
- Materiality: Concerns the relative size of an item and its effect on decisions.
- Faithful Representation: Agreement between the measure and the phenomenon it purports to represent.
- Completeness: Includes all information necessary for
Understanding Currency Exchange Rates and International Trade
Currency Exchange Rates
To facilitate international trade, it’s necessary to understand relative prices for converting one currency into another. This involves:
- A market that produces currency exchange.
- A system that establishes exchange rates.
Transactions are made in the currency exchange market.
The Currency Market
Currencies are bought and sold in a specific market for several reasons:
- To gain financial profitability by buying and selling assets.
- To profit from variations in exchange rates.
The function
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