Exchange Rate Regimes - Essay Example

Only on StudentShare

Extract of sample
Exchange Rate Regimes

Consequently, exchange rates are very sensitive to the receipt of new information (Swan, 1993, p 67-69).
The large and sustained changes in nominal and real exchange rates were among the most significant developments in the world economy in the 1980s. For example, in the first half of the decade, the US dollar appreciated by about 40 per cent against most other major currencies and then, in the second half of the decade, declined, reversing all the previous appreciation. These changes gave rise to international pressures associated with rapidly changing competitiveness of exports; intervention by central banks in foreign exchange markets; and intense debate regarding the extent to which these exchange rate changes interact with current account imbalances.
The ultimate purpose of economics is to increase economic welfare. So far we have concentrated almost entirely on the optimal allocation of a given bundle of resources, but it is obvious that welfare may also be improved either by increasing the quantity of resources available or by learning to do more with a given bundle. ...
Download paper

Summary

The impact of the inherent volatility and unpredictability of exchange rates on macroeconomic conditions is central to the debate about fixed and flexible exchange rates. Real exchange rates are defined as nominal rates adjusted for price levels. Since prices for individual countries, when expressed in a common currency, are subject to the variability of exchange rates, bilateral real exchange rates based on individual-country price levels may be infected with measurement errors…
Author : giles95

Related Essays

The Implications For An Economy Of A Rising Exchange Rate
The performance of a specific currency is determined by the demand for the currency and the investments on the economy. An increased exchange rate of a country’s currency in relation to world currencies such as the dollar influences negatively on the export of the country’s products. On the other hand, the cost of imports is decreased by a strengthening currency and therefore more goods and services are imported. However, a strong currency discourages foreign investment and as a result, central banks use various strategies to ensure that currencies are regulated. This acts to protect the...
11 pages (2761 words) Essay
The 1992 European Exchange Rate Mechanism Crisis
The researcher of this case study concludes that the 1992 crises in the UK was as result of increased conflicts and lack of commitment among members of the European exchange rate mechanism. This led to frequent speculative attacks where the speculators and investment banks were aware of the strategies of individual central banks that led to great financial losses. The European exchange rate mechanism was initially formed to stimulate trade and investment among member countries of the union; it was also to be used as a tool that would help maintain a stable exchange rate among the currencies of...
6 pages (1506 words) Case Study
Floating and Fixed Exchange Rate Regimes
Views on the cause and lessons of the Mexican monetary crisis differ as evidence in numerous media articles and educational studies subsequent the crash. To some, the depression of the peso was a terrible mistake. To others, the final collapse seemed predictable and the only subject was timing. Dornbusch, Goldfajn, and Valdes fit in to the latter. They quality the disaster to the nominal exchange rate fasten and unsustainable real approval of the peso. This view is communal by Obstfeld who states that it is dangerous to rely on the exchange rate as the main long-term instrument for plummeting...
4 pages (1004 words) Essay
The importance of exchange rate regimes for trade and investment flows and the main reasons for regular crises in the regimes
Studies show that countries often use the fixed exchange rate system and even "manipulate" free floats to stabilize trade and investment environment. Moreover, studies also show that there is a strong link between fixed exchange rates and low inflation though a weaker link exists between exchange rate regime and output growth. Consequently, the more able countries can carry out their monetary policies in steadying their economic environment, the more they can maintain their trade and investment health.
...
10 pages (2510 words) Essay
International Financial Management
The basic types of exchange rate regimes are the fixed exchange rate and the floating exchange rate. In the latter case the market decides the movements of the exchange rate. Exchange rate volatility is a common denominator of a country's exposure to international risk through foreign transactions, whether international trade or investment (Madura, 2009). The higher the degree of exposure the higher the degree of risk associated with such exposure. Thus the exchange rate can be considered as an important indicator in monetary policy and it mainly depends on the monetary policy framework of a...
12 pages (3012 words) Essay
Foreign Exchange Rates and Exchange Rate Risk
The rates therefore are either determined through the market forces or by the central bank of the country to maintain and manage them at a reasonable level.
...
4 pages (1004 words) Essay
Got a tricky question? Receive an answer from students like you! Try us!