Sakura dreaming

Pegged exchanges

Like Euro to the dollar, certain events also result in a flexible exchange rate.

For example, you see a guy on his way out of the library. You know him as a friend of a friend, and have said hi to him a couple of times before but haven't spoken to him lately.

The uncovered interest partiy condition (UIP) curve: The interest level for a female(R f) equals the interest level in a male (R m) minus the expectations in the future ( E t+1) in interactions in dollars divided by yen minus current expectations (E t) divided by current expectations.

R (f) = R (m) - [ (E t+1 - E t) / E t)

For Temporary shocks in the short run:

Assuming expectations remain unchanged and the interest for male remains constant, and the female's interest increases, the UIP curve can only be held if there is an appreciation in current expectations (E t). This means that in the short run, women can show greater interest in men than men show in women, but in the long run, interest has to be matched by both parties in order to date.


Assume risk premium (p) = zero: he agrees to buy you lunch

This results in an increase for the demand of US dollars in the money market. (Pretend the FED didn't announce an increase interest rates yesterday.)

How permanent shocks can be better in the long run for women:
1.) expectations can change: you're hung out with him long enough
2.) prices can change: you're no longer limited to asking him to buy you dinner-now it can be dinner and a watch from Tiffany's

posted by Sakura @ 10:38 PM