Determine The 99% Confidence Interval For The True Populatio

Determine The 99 Confidence Interval For The True Population Mean If

Determine the 99% confidence interval for the true population mean, if a random sample of size 16 has a sample mean of 46.8 pounds and standard deviation of 4 pounds.

How do fixed and floating exchange rates differ in their adjustments to shifts in the supply and demand for currencies? What are the advantages and disadvantages of fixed versus floating exchange rates?

Paper For Above instruction

Introduction

The determination of confidence intervals and the comparative analysis of fixed and floating exchange rate systems are fundamental topics in statistics and international finance, respectively. This paper aims to provide a detailed calculation of the 99% confidence interval for a given sample and to explore the differences, advantages, and disadvantages of fixed versus floating exchange rates, illustrating their respective mechanisms in adjusting to supply and demand shifts.

Calculating the 99% Confidence Interval for the Population Mean

Given the sample size (n = 16), sample mean (\(\bar{x} = 46.8\) pounds), and sample standard deviation (s = 4 pounds), the goal is to compute the 99% confidence interval for the true population mean. Because the sample size is less than 30, and the population standard deviation is unknown, the t-distribution is appropriate for this calculation.

The degrees of freedom (df) are \(n - 1 = 15\). Using a t-distribution table or statistical software, the critical t-value (\(t_{0.005,15}\)) for a 99% confidence level is approximately 2.947.

The formula for the confidence interval (CI) is:

\[

\bar{x} \pm t_{\alpha/2, df} \times \frac{s}{\sqrt{n}}

\]

Calculating the margin of error:

\[

ME = 2.947 \times \frac{4}{\sqrt{16}} = 2.947 \times 1 = 2.947

\]

Therefore, the confidence interval is:

\[

46.8 \pm 2.947

\]

which results in:

\[

(43.85, 49.75)

\]

The interval (43.85 to 49.75) contains our best estimate of the true mean with 99% confidence.

Among the options provided, this corresponds to the interval 43.85 to 49.75.

Differences Between Fixed and Floating Exchange Rates

Exchange rate systems dictate how currencies' values are determined and adjusted in response to economic factors, especially shifts in supply and demand.

Fixed Exchange Rate System: Under this system, a country's currency value is pegged to another currency or a basket of currencies. Central banks maintain the fixed rate by intervening in the currency markets through buying or selling currencies or foreign exchange reserves. This system provides stability in international prices and promotes trade and investment.

Floating Exchange Rate System: Conversely, a floating or flexible exchange rate is determined by market forces—supply and demand. Governments or central banks intervene minimally, allowing the currency to fluctuate freely within the open market. This system reflects economic fundamentals directly.

Adjustment Mechanisms to Supply and Demand Shifts

In a fixed exchange rate system, adjustments to shifts in supply and demand are primarily achieved through direct intervention by the central bank, which may buy or sell foreign reserves to maintain the pegged rate. For example, if demand for a currency increases, the central bank sells foreign reserves to prevent the currency from appreciating beyond the fixed rate.

In a floating system, exchange rates adjust automatically to shifts in supply and demand. If demand increases, the currency appreciates; if demand decreases, it depreciates. Central banks may intervene to smooth excessive fluctuations but generally allow market forces to determine rates.

Advantages of Fixed Exchange Rates:

- Promote stability and reduce exchange rate risk, encouraging international trade and investment.

- Provide credible commitments for exchange rate stability, which can support economic policies.

- Simplify trade negotiations and planning by reducing currency fluctuation unpredictability.

Disadvantages of Fixed Exchange Rates:

- Require substantial foreign exchange reserves for intervention.

- Lack of flexibility can propagate economic shocks if the fixed rate is misaligned with economic fundamentals.

- Central bank intervention can lead to currency crises if reserves are depleted.

Advantages of Floating Exchange Rates:

- Allow for automatic adjustment of theexchange rate in response to economic shocks, aiding macroeconomic stability.

- Reduce the need for large foreign exchange reserves.

- Allow policymakers to focus on domestic economic objectives without maintaining a fixed rate.

Disadvantages of Floating Exchange Rates:

- Potential for high volatility, creating uncertainty in international trade.

- Risk of speculative attacks and currency crises.

- Less predictability may deter foreign investment and complicate international contracts.

Conclusion

The choice between fixed and floating exchange rate systems depends on a country's economic priorities and circumstances. Fixed rates offer stability but require significant reserves and can be inflexible, while floating rates provide automatic adjustment and market-driven price discovery but introduce volatility. Accurate calculation of confidence intervals, as demonstrated, plays a crucial role in statistical inference, paralleling how policy tools are used to maintain currency stability or flexibility.

References

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