Explain how exchange rates are considered a self-correcting mechanism of international trade.

  1. Explain how exchange rates are considered a self-correcting mechanism of international trade.
  2. Explain with examples (at least 3) of arbitrage in exchange rates.
  3. Explain how a country’s balances of payment directly affect the exchange rate.
  4. Explain the many reasons why companies locate outside of their home country.
  5. Explain how the balance of payments is balanced. What pays for a current account defeicit or a capital account surplus.
  6. Explain the relationship between interest rates and exchange rates.

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