Wednesday, May 19, 2010


Traditional Mode (for stock)

Currency depreciation => decrease in economic activity (short run)

=> increased in export (long run) => higher equity prices

Money demand model

High economic activity => currency appreciates

=> higher stock prices

Free market theory

Increase in real interest => currency appreciation

=> lower bond prices

Government intervention theory

Currency appreciations to the upper limit => government decrease interest rate => bond prices up.

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