Economics Questions

Re: Why do foreign capital inflows cause currency appreciation?

Esuric — Sun, 21 Nov 2010 05:34:11 GMT

This is why our current international monetary system is entirely untenable; there are no self-correcting mechanisms preventing continuous inflation. In fact, this monetary regime is characterized by perpetual, run away inflation. Simply put, as nation "A" inflates (arbitrarily reducing its interest rate), capital flows away from that nation towards other nations, perpetuating the currency devaluation. The only way that this process can come to an end is if that nation (the inflating nation) pursues a forced deflationary policy, which is politically impossible.

Re: Why do foreign capital inflows cause currency appreciation?

LeeO — Sun, 21 Nov 2010 04:51:24 GMT

Thanks for the answers.

Re: Why do foreign capital inflows cause currency appreciation?

Esuric — Sun, 21 Nov 2010 04:45:04 GMT

So, for example, when United States businesses buy capital goods in Brazil, this causes Brazil's currency to appreciate? Why?

A higher demand for the Real relative to the USD.

Re: Why do foreign capital inflows cause currency appreciation?

BlackNumero — Sun, 21 Nov 2010 03:10:45 GMT

Because in order for the U.S firms to buy Brazilian capital goods, they need Brazilian currency. And the U.S increasing their demand for Brazilian currency will cause the Brazilian currency to appreciate.

Re: Why do foreign capital inflows cause currency appreciation?

Edmund Carlyle — Sun, 21 Nov 2010 02:52:52 GMT

So, for example, when United States businesses buy capital goods in Brazil, this causes Brazil's currency to appreciate? Why?

I am thinking here, and I don't have an off the cuff catallactic reason. I would say it is possible that the fact that people buy up Brazillian currency in U.S. dollars and then spend Brazillian currency to buy Brazillian capital goods would improve the standing of the money, and also improve the amount of U.S. dollar reserves in Brazil?

Why do foreign capital inflows cause currency appreciation?

LeeO — Sun, 21 Nov 2010 02:44:24 GMT

When I read The Economist, sentences like this pop up all the time: "Other emerging economies cry that they are innocent victims, as their currencies are forced up by foreign capital flooding into their markets and away from low yields elsewhere."

So, for example, when United States businesses buy capital goods in Brazil, this causes Brazil's currency to appreciate? Why?