homework help

Fundamentals, Expectations and Arbitrage

Personalized homework help for all major subjects.

Order confidently with our risk free, 14-day money-back guarantee.

  • ✔️ No sign-up required
  • | 🔒 100% Confidential

Our Expert Writers

We proudly boast a team of expert professionals with verified academic credentials, selected for their proven skills and flexibility through a strict process.

Engage with experts from the top universities across the globe.

Get Homework Help Instantly

Say goodbye to homework stress! 📚 Just share your details and we’ll whip up an affordable quote in no time – often within 15 minutes.

Get started now for FREE!

Submit Your Homework

Let our experts help you with your college homework

Fluctuation in the expected exchange rate is caused by the new information of the fundamental influences which are received by the economy – these would include the imports, exports, interest rate which is relative to foreign investment rates. Thus it can be said that the expected exchange rate has a direct influence in determining or changing the real exchange rate. The variables such as import and export have certain expectations, this leads to an instant alteration of the expected exchange rate. The entire system works on assumptions, for example if traders hear that the rate of interest will be hiked next week, they buy dollars in a huge sum in hope of selling them off next week at a hiked price. This means that these traders assume an appreciation to occur and the value of dollar to increase. Therefore an expected rise in the value of the dollar in the future leads to an increase in its present value. This reduces the supply of the currency today and hikes the exchange rate. Hence as observed the exchange rate rises as soon as there is an expected rise.

The method of profiting involves arbitrage. Arbitrage is a tactical method by which goods and services purchased in one market are sold for a higher price in another market of a relative standard. This method of Arbitrage makes sure that the rate at which exchange occurs is same in two cities like for example London in UK and New York in America, as well as other trading centers. It is not possible to purchase at a low price in one city and sell for a hiked price in another. If this kind of sale was possible demand of the goods would be controlled and balanced to keep prices equal. Profit is also controlled by buying and selling in two different currencies. Arbitrage leads to parity of two kinds:

  • Parity of interest rate
  • Parity of power of purchase 

Interest Rate Parity

To understand interest rate parity an example would be ideal, let us assume that a bank deposit earns 5% in China and 3% in New York. Then it is obvious that the bank deposit would be shifted to China from New York. In fact loans could be taken from New York to invest in China. This kind of an approach is called the “Carry Trade”. However the parity occurs in the interest rate when the currencies of these two places, namely, China and New York differ. When the differences in the currencies are calculated it will be seen that the rate of interest which yields a certain amount is same in both the countries. Therefore interest rate parity can be understood as similar value of the interests which are earned across countries. This is balanced out keeping the risks in mind and the funds are often moved about to get the highest possible expected return. Again going back to the example of China and New York, if for a short time the rate of interest in New York rises and the value of dollar go up then the interest rates is balanced out. 

Purchasing Power Parity

Let us try to understand purchase power parity through an example. If 100 yen equals to a dollar and a commodity costs 10000 Yen in Japan and $100 in America then the two commodities are of the same value. Therefore the same product can be easily purchased in both these countries for the same price. You could express the value either in dollar or yen and it would mean the same. The example shows equal value of money in different countries and this is what purchasing power parity seeks to denote. However there might not be a substantial harmony between the purchasing power of two countries. This implies that a commodity can be priced at an equal rate in two countries.  For example, if the same commodity is priced at $110 instead of $100 and the exchange rate remains constant then to maintain parity the forces of arbitrage need to come to work. The solution would then be to raise the price of the commodity in Yen from 10000 yen to 11000 yen. Since the price is not at parity in the two countries a different approach is adopted to bring the parity in purchasing power.

 Now if the value of commodities is rising only in one country while the price in the other country is static, like say prices rise in America but stay static in other parts, then the country where prices are rising will face a drop in foreign exchange market. This is also a way of ensuring parity where the exchange rate witnesses a drop. If US dollars are used as the example and the exchange rate of dollars faces a drop then there is a decrease in demand and increase in supply of the currency. Therefore since the demand falls and supply increases of the dollar it leads to restoration of the purchasing power parity. If the opposite happens and the prices of other countries increase while the dollar remains constant it leads to appreciation of the dollar. Here the demand of dollars increases while the supply witnesses a drop and exchange rate rises as per the expected rate.  Till now the discussion has revolved around nominal exchange rate and the examples have illustrated buying one commodity of a certain currency using another. The next segment will deal the concept of real exchange rate.


Links of Previous Main Topic:-

Links of Next Macroeconomics Topics:-

Your Price: $11.00 $10.00

Pricing may change based on requirements

Descriptive text for the image

Get Homework Help In

Maths and Statistics


Humanities & Arts


Essay Writing

How Our Homework Service Works

FAQ number 1

Share your requirements

FAQ number 2

Make secure payment

FAQ number 3

Get homework answers

FAQ - Frequently Asked Questions

Discover quick answers in our FAQ, covering the most common customer questions about our homework help service.

Is your homework service confidential?


Absolutely! Confidentiality is one of the basic guarantees of our service at MyHomeworkHelp.com.

When our customers make their homework orders, they know their information remains 100% confidential.

Even your homework writer will not be provided with your personal details. So, when you hire a professional homework helper on our website, rest assured that your information will remain private and safe.

For a comprehensive understanding of how we protect your privacy, please refer to our Privacy Policy.

Who will help me with my homework?


We work with subject experts from all over the world. We hire them with the help of complex tests in the disciplines of their expertise. We also verify the IDs and academic transcripts of our homework writers to be sure that our experts have a bachelor's or master’s or a PhD degree. This is how we can be sure of the proficiency of our panel of experts who will help you with your homework.

Is it legal to ask for help with homework?


Seeking homework help is perfectly fine and shows your proactive approach to overcoming challenges. But it's important to use our homework service to enhance your understanding, not to replace your own efforts.

Our homework service offers original solutions for personal use, including:

  • Generating ideas or arguments for your research.
  • Deepening your subject comprehension.
  • Direct citation, with proper referencing.

However, it's crucial to avoid plagiarism by not submitting our work as your own. Make sure to check your institution's academic integrity policies before using our services. Our goal is to support your educational journey in a responsible and beneficial way. Refer our honor code for more details.

Is myhomeworkhelp.com legit?


Yes, myhomeworkhelp.com is completely legitimate. We've been successfully connecting students with top experts worldwide since 2012, offering direct, secure communication for a seamless learning experience. With over thousands of students helped and a commitment to innovative, effective education tools, we're dedicated to making learning easier and more accessible for everyone.

You can read our reviews here on Trustpilot and Sitejabber (Independent, verified reviews from buying customers) like you!

Is there a possibility of plagiarism in my completed order?


Unlike our competitors who use cheap and ineffective in -house plagiarism software, MyHomeworkHelp.com uses credible software to check your homework solution originality. We guarantee that your paper will pass TurnItIn checks with a low percentage of similarity. In addition, we also check submitted papers for ai-content using Originality.ai.

You will receive a complemantary plagiarism free report with your completed order.

What makes you one of the best homework help website?


We are not number 1 (yet!). We're an independent, bootstrapped business standing up to Big EdTech for last 12 years. So it means a lot that folks like you are willing to consider our services for your educational needs.

Myhomework Help is recognized as one of the premier websites for homework answers for three key reasons.

  1. Firstly, we pride ourselves on the expertise and qualifications of our tutors/experts, who are selected through a rigorous vetting process to ensure they can provide best academic assistance across a wide range of subjects.
  2. Secondly, our response time to student inquiries is fast (as early as few minutes), reflecting our understanding of the importance of timely support in an academic setting.
  3. Lastly, we keep our pricing very student friendly. Our aim is to provide the best learning experience to students like yourself without burning a hole in your pockets.