University Economics: Foreign Exchange Homework and Market Analysis

This document presents a comprehensive solution to a foreign exchange homework assignment. It begins by analyzing how various transactions impact the demand and supply of pounds sterling in the dollar-pound market, including the effects on currency appreciation and depreciation. The assignment then delves into the dynamics of the dollar-pound foreign exchange market under a fixed exchange rate system, exploring the Federal Reserve's intervention strategies and their impact on the U.S. balance of payments and money supply. The analysis extends to examining the volatility of the pound-dollar exchange rate over different periods, comparing firms' preparedness for currency devaluations. Furthermore, the document discusses the behavior of Asian governments in managing exchange rates following the 1997-98 financial crisis, considering the arguments for and against fixed and floating exchange rate regimes. The assignment concludes with practical examples of arbitrage opportunities in the foreign exchange market and calculations related to currency conversions for travel, providing a well-rounded understanding of foreign exchange concepts.