Describe the evolution of the price level

Assignment Help Financial Management

Reference no: EM131536430

The government of country A is running a budget deficit of 500 million pesos per year. To finance it, the government sells treasury bills to the central bank. The exchange rate is fixed at 20 pesos per dollar. Assume that the international price level is fixed and that the central bank has a large amount of foreign reserves.

a. Calculate the yearly change in the foreign reserves of the central bank. Would you expect this process to be smooth over time? Why?

b. Describe the evolution of the price level, the exchange rate, and nominal and real monetary balances before and after the exhaustion of the foreign reserves of the central bank.

Reference no: EM131536430

Questions Cloud

Explain the ethical and legal implications of disclosure : Explain the ethical and legal implications of disclosure and nondisclosure. Be sure to reference laws specific to your state

What is his after tax lease payment : He rents the trucks on an asneeded basis about twice per week. If his tax rate is 8%, then what is his after tax lease payment?

Accounting department costs will be allocated to production : How much of the accounting department costs will be allocated to the production?

Which should be viewed as opportunity cash flow : Which of the above expenditures should be classified as sunk cash flows and which should be viewed as opportunity cash flow?

Describe the evolution of the price level : Describe the evolution of the price level, exchange rate, nominal and real monetary balances before and after exhaustion of foreign reserves of central BANK

Principal repayment of remaining amount : Assume the market interest rate is 5 percent. What is the NPV of a $1,000 loan that carries an interest rate of 7 percent and has a maturity.

Make the requisite entries in the accounts of b hoad : On 1st July, 1962, B. Hoad paid £2,000 into his business as capital. The following transactions took place: July 3 Purchased Motor Van for £800.

Value of the dollar around the world : If the US raises its interest rates in order to control inflation. How would such action affect the value of the dollar around the world? and why?

Determine the country opportunity cost : But what determines the country's opportunity cost? Why German engineering is superior to other countries's engendering, for example?

User Account

All Pages