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Finance and Accounting Essay: Global finance
Finance & Accounting
Pages 14 (3514 words)
Global finance Name Course Instructor Date of submission Global finance Question one a) The key features of Floating rate: According to Madura, J. (2003, p. 63) the main feature here is the automatic readjustment of a currency price to the level required in order to equal the supply and demand for the currency.
They are normally variable since sometimes bandwagons and other speculative behavior drives and determines demand. It can also be so because exchange rates sometimes overshoot their long-run values. The market corrects the rate automatically reflecting inflation and other market conditions influencing the economy. Crawling peg: In this system, a currency links its value to another but gives it fluctuation limits and is immensely valuable if a currency linking itself has expectations of being volatile exceptionally, hence allowing itself to fluctuate to a level acceptable under the conditions. In this system, the authorities determine the value around which the currency can fluctuate. Fixed exchange rate system Here, a currency has a direct convertibility towards another currency with the government trying to keep the value constant against the other currency. The government decrees the worth of its currency against the value of another, plus rules of the exchange. b) Advantages and disadvantages of Floating rate exchange system Advantages Flexibility, which enhances the capability of the country market economy to pick up and adjust quickly to the changing market conditions, is the main advantage of this system. ...
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