How complex pricing models were employed to cause worldwide currencies to weaken

Question

How complex pricing models were employed to cause worldwide currencies to weaken or strengthen. Describe the influences that caused the yen to fall. Further, describe the effects on world currencies seen since the writing of this article. How did the Fed’s actions affect worldwide supply and demand? How might you change your buying behavior with the knowledge of how currencies fluctuate?

What do you understand about how gas prices are determined? Do you believe that the policy needs to have changes? State your opinion and support it by using the simple pricing model and external evidence critiquing or supporting your arguments.

Describe your opinion of direct and indirect price discrimination. How do these strategies affect consumers? Do these strategies violate the intent of antitrust laws or do you think they are ethically defensible practices for businesses? Explain your rationale. What factors would have to change to make you change your opinion?

Explanation / Answer

Currency of a country either gets weaken or strenghten in terms of other countries' currencies. If a currencey gets cheaper in terms of other currency then it is said to be weaken and if it gets costlier then it has strenghen.

There are many factors which contribute to such phenomena of weakening and strengthning the currencies. If fixed exchange regime prevails then no effect of market and pricing exert on such appreciation or depreciation, only central bank decides.

But in case of floating exchange that is prevalent almost everywhere ther are numerous factors that contribute to such thing. One important factor is complex pricing system. One radical form of real determination of exchange rate is offered by the "one price law", according to which any good has the same price worldwide, after taken into account nominal exchange rates. If a hamburger costs 3 US dollars in the United States and 30 000 yen in Japan, then the exchange rate must be 10 000 yen per dollar. The forex marketwould passively adjust to permit the functioning of the "one price law".

Beside inflation also effect the system that gets affected by pric level. If price level increases inflation increases. To which a country's exports get costleir and imports get cheaper. Thus, there will be less demand of domestic currency and more demand of foreign currnecy. Hence the domestic currency will get weaken. Opposite is the case in deflation.

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