Question

Assume that both the U.S and Europe experience high unemployment. How can the U.S central bank attempt to adjust the dollar value to reduce this problem? Is the European central bank likely to go along with the US central bank's strategy or retaliate? Why?

Why are quoted soot rates very similar across all banks?

Answer 1

When there is high unemployment in the US and Europe, the US central bank can go for Quantitative easing (QE) to increase the money supply and also simultaneously reduce benchmark interest rates which will help in increasing investment and generating higher Jobs. When this happens, the US dollar depreciates and hence the Euro will appreciate. Since the European central bank also has to deal with Unemployment, the European central bank will retaliate by also doing Quantitative easing (QE) and reducing interest rates to devalue the Euro.

Quoted Soot rates are similar across banks since they all compete among themselves for customer and market share. If there is too much of a differential, that could lead to decrease in market share of the bank.