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Common currency to mitigate exchange rate

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Reference no: EM131476088

Question 1: After the Asian Financial Crisis in 1997, there is talk of introducing an ASEAN Common Currency to mitigate exchange rate uncertainty and speculative attacks. With the establishment of the ASEAN Economic Community in 2015, you are asked to advise if it is timely to have an ASEAN Common Currency in this region. Answer the following questions:

(a) Explain the meaning of an Optimum Currency Area. Discuss the advantages of ASEAN forming an optimal currency area.

(b) What are the factors member countries should consider before ASEAN can adopt a common currency? Explain.

Question 2: (a) If the current U.S. interest rate is 2 percent more than the rate in the European Union.

(i) Analyse if the dollar is likely to appreciate or depreciate against the euro, and by how much.

(ii) If it is different from your expectations, the forward and spot rates are the same, which direction would you expect financial capital to flow? Explain why it is so.

(b) An economy has a fixed exchange rate with high capital mobility and currently it is in an economic recession. Could an expansionary monetary policy be effective in stimulating its economy? Discuss.

  • Provide a reference or bibliography at the end of report.
  • No Plagiarism.

Reference no: EM131476088

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