While Saudi Arabia seeks to diversify its economy, the Saudi economy is dominated by the petroleum sector. In addition, the Saudi Arabian Riyal (SAR) is pegged to the U.S. Dollar. For this week’s discussion, please answer the following questions:
- What are the advantages and disadvantages of the pegged exchange rate?
- Analyze the effect on the economy of Saudi Arabia (GDP, interest rates, inflation, and trade balance) given two scenarios when there is a dramatically declining world oil price or a dramatically increasing world oil price.
Requirements: 4-5
Answer preview
The exchange rate plays a significant role in a country’s trade performance. The exchange rate is mainly to the country’s policy or the exogenous factors. The currency valuations or the currencies and their volatility often have crucial repercussions on international trade, overall economic performance, and the balance of payments. It is the rate at which a given country’s currency is traded against that of another country. The exchange rates change
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