Thus an inter-bank market for HK$ notes at the exchange rate was created. In practice, in foreign exchange (FX) market, the exchange rate is allowed to float freely by market demand and supply. ... So, the forces of competition and arbitrage between markets will ensure that the FX market exchange rate stabilizes at a level close to the fixed rate of 7.80, without the intervention from the EF. ... In fact, trading of HK$ relates very much to the confidence of local people & investors since if they worry about the future and withdraw capital from HK, then the government will have to spen...

• Word Count: 1827
• Approx Pages: 7
• Has Bibliography
• Grade Level: High School

It relates to the nominal exchange rate and relative price both in home country and foreign country (Ellis, 2002). ... Definition of Real Exchange Rate By definition, real exchange rate refers to the price of foreign goods exchanged into a domestic currency relative to the price of domestic goods (Ellis, 2002). ... Therefore, real exchange rate can be expressed as "the ratio of the price level in the home country to the price level in the foreign country" (Ellis, 2002,p1). ... Different from weight schemes mentioned above, capital account weights focus on capital market, instead of trade m...

• Word Count: 2178
• Approx Pages: 9
• Grade Level: Undergraduate