At the end of World War I, the Treaty of Versailles imposed an indemnity on Germany, a

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At the end of World War I, the Treaty of Versailles imposed an indemnity on Germany, a large annual payment from it to the victorious Allies. (Many historians believe this indemnity played a role in destabilizing financial markets in the interwar period and even in bringing on World War II.) In the 1920s, economists John Maynard Keynes and Bertil Ohlin had a spirited debate in the Economic Journal over the possibility that the transfer payment would impose a “secondary burden” on Germany by worsening its terms of trade. Use the theory developed in this chapter to discuss the mechanisms through which a permanent transfer from Poland to the Czech Republic would affect the real zloty/koruna exchange rate in the long run.

Exchange Rate
The value of one currency for the purpose of conversion to another. Exchange Rate means on any day, for purposes of determining the Dollar Equivalent of any currency other than Dollars, the rate at which such currency may be exchanged into Dollars...
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International Economics Theory and Policy

ISBN: 978-0134519579

11th Edition

Authors: Paul R. Krugman, Maurice Obstfeld, Marc Melitz

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