StudentShare solutions
Triangle menu

Market Microstructure Approach - Essay Example

Nobody downloaded yet
The above factors will therefore be important in answering the discussing whether the market microstructure to exchange rate has been a radical departure from the 1960's, 1970's and 1980's international macroeconomic models. This will involve assessing ach factor against a certain model thus noting the development undergone. For example, the economic growth under the monetary model of the 1960's was slow compared to the economic growth in the recent market microstructure approach. Combining these factors with the market exchange rate expectations will give us the current change value. According to the monetary model argues that relative price levels of any given two countries will provide the determinant to exchange rate. ( Obstfeld, M. and Kenneth, R, 1996)
The real output level in a given country will also be a very important factor in assessing the models development; this is because it directly affects the price levels of certain goods and services. For instance, a rise in the United States output level with the other factors remaining constant will lead to a fall in the average prices in the US this will in return lead to the dollar appreciation. Past and future fundamental economic factors will matter a lot since the plays an important role of determining the future market expectations rate.
Some of the traditional model of exchange rate includes asset market approach, mundell Fleming model orgarch model among others. They all had a shortcoming of failing to explain exchange rate movement's ion the long run.

Mundell Fleming Model
This theory was developed by Marcus Fleming and Robert Mundell in the 1960's. It was an extension of the LM model describing a small open economy. It gives the relationship between the nominal exchange rate and output of an economy in the short run. The model assures that under fixed rate regime an increase in government expenditure will shift the cure to the right. (Hamilton, 1994)
This shift will increase the interest rate with the resultant effect being an appreciation of the exchange rate. In the fixed system framework the exchange will be controlled by the local momentary authority. The momentary authority stabilizes the exchange rate by using local currencies to purchase foreign currencies. This will in turn shift the LM curve in line with the direction of the IS shift, a thing that helps in lowering the exchange rate by increasing the supply of local currency in the market. However, a decrease in the government expenditure will shift the IS curve to the right. The shift will lead to a decline in the level of interest rate resulting to a depreciation of the exchange rate. (Hamilton, 1994)
The central bank or relevant monetary authority will vary the money supply so as to realize a constant exchange rate level. Local authority adds its foreign reserves through increased purchase of foreign currencies using the local currency. this will lead to exchange rate appreciation.Incase it wants to depreciate the exchange rate the authority will use the foreign reserves to purchase its own currency to ...Show more


Market microstructure approach is taken as the study of the entire process and outcomes of assets exchange in consideration of the laid down trading rules. It is indeed a drastic move from the traditional exchange rate determination models, which only indicate the long run trends of exchange rate movements thus failing to explain the movements in the short run…
Author : laurinepagac
Market Microstructure Approach essay example
Read Text Preview
Save Your Time for More Important Things
Let us write or edit the essay on your topic
"Market Microstructure Approach"
with a personal 20% discount.
Grab the best paper

Check these samples - they also fit your topic

Exemplar approach
Exemplar approach is more popular due to its efficiency in improving one’s psychological thinking and communication.The implementation of exemplar approach purely depends is considered to be effective as it depends on the type of person who is treated. The results of exemplar approach may not be the same in all the cases, since the implementation procedure might differ from one person to another.
11 pages (2750 words) Essay
Explain why emissions' trading is a compromise between a) the Pigovian taxation approach and b) the pure Coase theorem approac
Firms buy the cap as permits, which allow them to emit pollutants to a certain limit. The number of permits a firm should have must be equivalent to the amount of its emissions. If a firm has to augment its emissions, it will have to purchase the carbon credits from other firms, which do not need many permits (Abramson & Kieffaber 2003 p.
3 pages (750 words) Essay
Perhaps his success can partly be attributed to the cult of personality around him and partly because of his wife. His wife Eva Duarte rose from being a singer into becoming Peron’s mistress while serving as a military officer. Peron married her before rising to presidency.
5 pages (1250 words) Essay
Nussbaums Approach, the Capabilities Approach
Good governance as championed by many political philosophers should lead to a number of benefits that include the involvement of all citizens in decision-making, political participation by the minority and marginalized groups, freedom of information and expression, and formation institutional reforms.
7 pages (1750 words) Essay
Discussing (Tata Steel) and its current approach to managing environmental drivers in their market. You should identify and an
In this regard, the organisations in the present business environment can be widely recognised to develop effective business strategies to effectively deal with the environmental and industrial influencing drivers. With respect to the potential impact of the environmental factors, the report tends to critically analyse the five key environmental forces in relation to the international business operation of TATA Steel.
13 pages (3250 words) Essay
The company has been especially exceptional in the production of smart phones. Smart phones from Samsung Company include Samsung galaxy s3, s2 and Samsung note. The latest smart phone that has captured the attention of many customers is Samsung Galaxy S4.
5 pages (1250 words) Essay
Since the demand for money rises above money supply the interest rate rises. This results in increases savings and decreased private investment. Since people can either save or consume their income, in order to increase savings the consumption will decrease.
11 pages (2750 words) Essay
Systems Approach
[Kelly, G., p.169]. The System Approach integrates both holism and reductionism. [Kelly, G., p.204]. According to this, the laws governing the parts determine or cause the behavior of the whole. That's why the client's behavior needs to be viewed as a whole, being determined by the complex of influences from inner and outer surroundings to the organism.
2 pages (500 words) Essay
Will the election on Nicolas Sarkozy as President of France ensure that European integration decisevely moves forward following a free market approach
For example, the Italian government imposed a statistical levy on imports and exports. This government policy had to be discontinued, as in the perspective of the Commission and Court of Justice it was equivalent in effect to
12 pages (3000 words) Essay
Microstructure and Mechanical Properties
This helps in generating torque on the particles that have been trapped into the mechanism. Using this process, we are able to achieve analysis of trap stiffness among the particles of the sample, the interaction
3 pages (750 words) Essay
Hire a pro to write
a paper under your requirements!
Win a special DISCOUNT!
Put in your e-mail and click the button with your lucky finger
Your email
Comments (0)
Click to create a comment
Let us find you another Essay on topic Market Microstructure Approach for FREE!
Contact us:
Contact Us Now
  • About StudentShare

  • Testimonials

  • FAQ

  • Blog

  • Free Essays
  • New Essays
  • Essays

  • The Newest Essay Topics
Join us:
Contact Us