Read the following article fromBloomberg.com about...

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Read the following article fromBloomberg.com about theAzerbaijaniManat.
http://www.bloomberg.com/news/articles/2016-01-19/azerbaijan-moves-to-tighten-currency-controls-as-crisis-rages
Azerbaijan previously had pegged their currency, themanat, to the U.S. dollar at an exchange rate of 1.05manat= $1.00.
Using the information learned in class and theinternetwhere necessary, please answer the following questions about the article:
1. Why would a country like Azerbaijanwant to historically peg their currency to the USD?
2. Why would lower oil revenues hurt the country's foreign currency reserves? Hint: How is oil priced in world markets?
3. The article stated that the government "moved to a free float last month after burning through more than half of its foreign currency reserves..." This was done when the government wastrying to support the USD peg. What exactly was the government doing here? In other words,

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Read the following article from Bloomberg.com about the Azerbaijani Manat. HYPERLINK "http://www.bloomberg.com/news/articles/2016-01-19/azerbaijan-moves-to-tighten-currency-controls-as-crisis-rages" http://www.bloomberg.com/news/articles/2016-01-19/azerbaijan-moves-to-tighten-currency-controls-as-crisis-rages Azerbaijan previously had pegged their currency, the manat, to the U.S. dollar at an exchange rate of 1.05 manat = $1.00. Using the information learned in class and the internet where necessary, please answer the following questions about the article: 1. Why would a country like Azerbaijan want to historically peg their currency to the USD? 2. Why would lower oil revenues hurt the country's foreign currency reserves? Hint: How is oil priced in world markets? 3. The article stated that the government "moved to a free float last month after burning through more than half of its foreign currency reserves..." This was done when the government was trying to support the USD peg. What exactly was the government doing here? In other words, what were they buying the foreign currency and why? Explain in your own words please. 4. At a rate of 1.6350 manat = $1.00, how much has the manat depreciated in % than the previously pegged rate rate of 1.05 manat = $1.00? Show all work. 5. How much would a hotel room in Azerbaijan that costs 150 manat cost in USD at 1.6350 manat? How much would this same hotel room cost in USD at the previously pegged rate or 1.05 manat? Show all work. 6. The article said that the government may allow repayment of dollar loans up to $5,000 at the previously pegged rate of 1.05 manat. How much in manat would this save the borrower versus the listed market rate of 1.6350 manat = $1.00? Show all work. 7. The article says that rallies have been staged to protest rising prices. Why would the manat currency devaluation lead to price inflation in Azerbajian? 8. The 20% fee on foreign currency exports is called a...

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David · Accepted Answer

Read the following article from Bloomberg.com about the Azerbaijani Manat. 
http://www.bloomberg.com/news/articles/2016-01-19/azerbaijan-moves-to-tighten-
currency-controls-as-crisis-rages 
 
Azerbaijan previously had pegged their currency, the manat, to the U.S. dollar at an 
exchange rate of 1.05 manat = $1.00. 
Using the information learned in class and the internet where necessary, please answer 
the following questions about the article: 
 
1.  Why would a country like Azerbaijan want to historically peg their currency to the 
USD? 
A country with an economy majorly dependent upon oil & energy generally prefers to 
peg its currency to U.S. dollar. This is done to bring stability to the economy as U.S. is a 
major trading partner of oil & natural resources. Fixing their currency to U.S. dollars 
stabilizes their currency that makes their economy less volatile. Since Azerbaijan’s 
economy mainly depends upon oil & energy, it has historically pegged their currency 
to the USD. 
 
2.  Why would lower oil revenues hurt the country's foreign currency reserves? 
Hint:  How is oil priced in world markets? 
 
The major contributor of Azerbaijan’s revenue is oil & energy revenue. When oil is sold 
in international market, the transactional currency is generally U.S. dollars. A decrease 
in oil revenue would result in lesser U.S. dollars received whereas spending of U.S. 
dollar may not change as commodities being imported generally would not see a fall. 
So, the inflow of dollar goes down whereas outflow remains constant and this would 
hurt country’s foreign currency reserves as the country would be forced to use its 
foreign currency reserves for imports. 
 
 
3.  The article stated that the government "moved to a free float last month after 
burning through more than half of its foreign currency reserves..."  This was done when 
the government was trying to support the USD peg.  What exactly was the government 
doing here?  In other words, what were they buying the foreign currency and 
why?  Explain in your own words please.

Read the following article fromBloomberg.com about theAzerbaijaniManat. http://www.bloomberg.com/news/articles/ XXXXXXXXXX/azerbaijan-moves-to-tighten-currency-controls-as-crisis-rages Azerbaijan...

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