Does the nominal exchange rate take into account treasury securities? Does the real exchange rate depend partly on the purchase of treasury securities?
The bank can control the SUPPLY of the currency, which is one aspect of the exchange rate. DEMAND is fueled by investment opportunities and demand for exportsthe government can have a slight role in this in fostering a positive business environment, but generally speaking this one is much harder to manage.
Exchange rate of local currency is expressed in terms of foreign currency. like $1 is bought with and sold against 0.40 British Pound. But different foreign currencies, the local currency will have different exchange rate. like x Yens per dollar 0r y Rupees per dollar or z pesos per dollar. Nominal exchange rates are generally set in the market for relative demand and supply of the local currency and the relevant foreign currency. Hoever, curtain govts. think they are powerful and do not like markets to find out the value of their local currency: they foolishly think that their currency should have a good value or think that they know better than the market. In such circumstances, the govt. or central bank of a country may announce exchange rates from time to time ( eg China). But that does not stop an unofficial market to develop in the exchange rate. So two parallel sets of exchange rates can be in existence. Govts or central banks take the power to decide the exchange rates but do not have real power to control. Real exchange rates depend on the market/ officially pegged exchange rates and the rate of inflation, etc. It is computed and not used for market transactions. It is economists estimates and tool box use.
What determines exchange rate is the supply of money. The biggest determinant of the supply of money is interest rates. When a bank issues a loan, they in essence create money that isn't there. The lower the interest rates, the more people will barrow, and the more non-existent money the banks will create. The money supply goes up, and the value of the currency goes down. The value of currency is a ratio between the money supply and Gross National Product of the issuing nation. Treasury Securities basically reverse the money supply by taking real money possessed by the tax payers out of circulation. This lowers the money supply and increases the value of the currency. The government and central bank can only control the value of currency to a certain degree. The Japanese had to learn that the hard way. For years they tried to control their currency completely. One day they couldn't get enough currency out of circulation to prevent a value adjustment, and the value of the Yen crashed world wide. The central bank has to make decisions every day to move the value in whatever direction they want for the good of the economy, and they have to plan months in advance, and move very carefully, to prevent sending shock waves through the economy.
uncertain, from whati've found out its particularly extra complicated than that the critical economic company objectives for a undeniable interest fee or money furnish, then they advance the money furnish, which in turn depreciates(shrink) their forex values, and their internet exports circulate up and their mixture call for is going up:P so.i could probable say c.
