Both firms and households purchase investment goods to add to their stock of capital and replace existing capital that wears out.  People with households buy new houses, which is also a part of an educated investment one must consider.  The average total investment between these two categories is about 15% in the United States (real vs nominal).  The quantity of investment goods demanded depends on the interest rate, which measures the cost of the funds used to finance investment.  For an investment project to be profitable, its return (the revenue from increased future production of goods

An exchange rate is the price of one nation’s currency in terms of another nation’s currency. Since the value of money in any nation depends on its purchasing power, the demand for money is based on its ability to maintain the value and on the level of economic activity. Thus, exchange rates respond to force of demand and supply. In addition, under the absence of government intervention, exchange rates are dependent on relative inflation rates, interest rates, and GDP growth rates. Let us take a closer look at these factors to see how the exchange rate can be affected.

In December of 1981, the Financial Accounting Standards Board (FASB) created FASB 52, which was a new law affecting every U.S. company that had operations in foreign countries. Many factors contributed to the creation of FASB 52, but it is mostly attributable to the explosion of foreign growth, and companies going global. This situation created the need for a uniform way of tabulating gains and losses arising from exchange rate changes and reporting these affects on net income.

The practice of a state-controlled currency is identified as fixed exchange rates or ‘pegged’ exchange rates. Herein, the state government determines which strong currency or collective of currencies are to be matched to their own, such as the US dollar or the EU euro. Pegged exchange rates are employed to help stabilize the state’s currency by matching it with a strong currency, essentially tying the currencies. This provides stability for the state’s own currency, which in turn promotes international trade and development more effectively.

The Southeast Asia Currency Crisis began in 1997 and continued for about nine months. The crisis saw its beginning in Thailand, with the Thai baht showing dramatic depreciation in the range of forty to eighty percent. This phenomenon was the momentum for a domino effect, as the currencies in Indonesia, Malaysia, South Korea, and the Philippines began to show signs of depreciation at similar rates. With such high rates of currency depreciation, the stock markets crashed and many banks and businesses were forced to file bankruptcy. 

Bryan Robinson T TH 1 pm