Chapter 5: Monetary and Fiscal Policy Effects on Exchange Rates

In this section

• Monetary Policy (Interest Rates, QE) and Currency Valuation
  Discover how central banks use interest rates and unconventional policy tools like QE to shape currency valuations, exploring transmission mechanisms, market expectations, and real-world examples.
• Fiscal Policy and Market Reactions
  Explore how government spending, taxation, and budget deficits shape exchange rates and investor sentiment. Learn the impact of crowding-out, fiscal multipliers, sovereign debt, and policy coordination on currency valuation and risk premiums.
• Intervention Objectives and Capital Controls
  Explore how central banks intervene in currency markets, distinguish between sterilized and non-sterilized operations, understand capital controls, and evaluate effectiveness, costs, and policy implications.
• Early Warning Signs of Currency Crises
  An in-depth look at the signals that may precede a major currency crisis, including macroeconomic indicators, real exchange rate misalignment, capital flight, and historical examples, to help identify vulnerabilities in global currency markets.
• Practice Vignettes: Coordinated Policy Actions
  Explore the interplay of monetary and fiscal measures through multi-paragraph vignettes, real-world data analysis, and item-set practice for CFA® Level II Economics.