Exchange Rate Determination

Module 11: Critical Thinking

Critical Thinking: Saudi Arabian Riyal and the U.S. Dollar (110 Points)

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.

In a critical essay, discuss the advantages and disadvantages of the pegged exchange rate. Indicate the main considerations Saudi Arabia faces from a currency perspective (e.g., currency values, interest rates, inflation, and trade issues) that ensue given two scenarios:

• The first scenario is a dramatically declining world oil price.
• The second scenario is a dramatically increasing world oil price.

Directions:

• Your essay is required to be four to five pages in length, which does not include the title page and reference pages, which are never a part of the content minimum requirements.
• Support your submission with course material concepts, principles, and theories from the textbook and at least three scholarly, peer-reviewed journal articles. Use the Saudi Digital Library to find your resources.
• Use Saudi Electronic University academic writing standards and follow APA style guidelines.
• It is strongly encouraged that you submit all assignments into Turnitin prior to submitting them to your instructor for grading. If you are unsure how to submit an assignment into the Originality Check tool, review the Turnitin – Student Guide for step-by-step instructions.
• Review the grading rubric to see how you will be graded for this assignment.