International Economic Problems Coursework Example | Topics and Well Written Essays - 750 words

International Economic Problems - Coursework Example It measures the average price of goods relative to the average price of goods of trading partners. a. The Calculation of the multilateral trade-weighted annual U.S. dollar exchange rates (USD per unit of foreign currency) with respect to four major trading partners of the United States: Canada, Mexico, China, and Germany, from 2007 (normal time) to 2013 (not so normal time) involves aggregation that take the following form: (Please note that weights are the volumes of US trade (exports + imports) with each trading partners). The weights for the j currencies included in the TWI are then calculated by re-scaling the trade shares so that they sum to 100. The inverse of the share of trade accounted for by the currencies included in the TWI basket, which make up at least 90 per cent of U.S’s total merchandise and services two-way trade. c. Calculate the real value of multilateral trade-weighted monthly average U.S. dollar exchange rates (use CPI of each nation to convert nominal exchange rate to real exchange rate. Index the real values of multilateral trade-weighted exchange rates (2007 = 100). d. With help of excel make two line graphs of the multilateral trade weighted-average monthly exchange rates (the nominal and the real). Write a short essay (about 100 words) on the performance of trade-weighted U.S. dollar exchange rates and its possible effects on U.S. trade with major trading partners. The exchange rate plays an important role in the tradable sector of the U.S. economy since movements in the exchange rate affect both the demand and supply of export and imports. The rise and fall of the exchange rate of the major trading partners of the U.S. is therefore an important point to the analysis of the U.S. economy. The unstable foreign currency value of the dollar over the past years and the increase in the U.S. price inflation recently have caused rippled pressure and concerns on the depreciating value of the U.S. dollar. Both