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The Government borrows money from the Federal Reserve Bank in order to pay for the budget deficit. The federal reserve then issues 1, 3, 5, and 10 year bonds which can be purchased by anybody in the world. The value of the bonds is determined by the trading which occurs in the bond market.
The fed's selling of bonds does not directly effect the exchange rate. The total amount of dollars in circulation is not effected by this as the sale price of the bonds covers the deficit. If people outside of the US buy these bonds then they will decrease the amount of dollars in their own country with will raise the value of the dollar there. In reality this is not often the case because a weaker dollar is often the reason why the bonds are purchased by foreigners.
Do not confuse the Federal Reserve's printing of new currency to mach the target rate with the financing of the deficit.
What else can I help you with?
How does exchange rate fluctuation affect the profitability of company engaged in import export?
The import export business relies on exchange rate. Fluctuations can greatly increase profits, or wipe them out altogether. This is what led to the establishment of the EURO.
Should investors care about MNC's translation exposure?
It does not affect cash flow, since it simply reflects the impact of exchange rate fluctuation on consolidated financial statements
How does overspending of government affect inflation?
Overspending brings more money into people's pocket and thus raises aggregate demand in the economy, especially in the short run where production units can not easily adjusted to increase their production! This creates excess demand or demand pull type of inflation underwhich too much money is chasing too few goods and services.In another scenario, government overspending leaves many government workers with little to no accountability. Low accountability eventually leads to a lack of motivation and production. With low production and too much money in people's pockets, we expect excess demand and demand pull inflation too!!By Balozi Morwa(Tanzania Investment Bank, 2013)
What are the political factors that affect fluctuation of exchange rate?
I am assuming that you are asking what makes one countries currency is worth less then another, well with many countries paper currency is used which actually has no value in itself but is a note stating what it is worth and the person who accepts it must take your word on that. Often if a country were to default or lose the trust of the other nations then no one would have any stock in our currency thus making it worth nothing to other people. This problem can be avoided with coins that have actual value themselves for instance silver dollars which are actually composed of silver, or the original pennies which were made of copper and worth about 7 cents rather then the penny they were passed off as.
What are some of the factors that affect the exchange rate in the long run?
Some factors that can affect exchange rates in the long run include interest rates, inflation rates, political stability, economic performance, and government debt. These factors can influence investor confidence, which in turn impacts the demand for a country's currency on the foreign exchange market and ultimately its exchange rate.
What is the affect of trade?
exchange of new ideas
How does government stability affect a business?
Yes the government can affect the stability of a business
How does the government affect peoples way of life?
How does the government affect people's lifestyle
How does the foreign exchange affect the international business?
i dont no
How did the mandate if heaven affect government in china?
how did the mandate of heaven affect government in china
How does the exchange rate affect Britain?
Exchange rate is depends on the rate of that country currency rates and gold!
How can government deficit affect international reserve?
There is no way government deficit can affect international reserve
