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MONEY AND BANKING - Essay Example
The movements in the current accounts for most economies are based primarily on the trade deficits. Current account deficits are usually financed by the net capital inflows. Mostly, the trade deficits are caused by the rise in the current account deficits as well as the booming stock markets…
From an economic view, trade deficits characterize poor economies. Most of the countries experiencing trade deficits are involved in consistent borrowing from other countries. Borrowing is not among the viable strategies in businesses. Labour unions consider trade deficits as key contributors to unemployment and it that it undermines the future production.
The pursuit of individual advantage stimulates the country by rewarding the ingenuity by using the powers bestowed by nature to enhance efficient distribution of labour.
The Foreign exchange markets are involved with the transactions for national currencies. The existent of such markets is influenced by the incorporation of the national currencies to the economy. In the world, the economy uses different currencies hence the need for the foreign exchange markets. Foreign exchange market is an example of exchange normally used in the international currencies decentralized globally. The financial centers around the world act as anchors for trade between different kinds of buyers and sellers.
The stance of the monetary policies in industrialized countries has been inconsistent in bringing the value of foreign exchange currency back to its average value. This assumes the depreciation of the policies on the exchange currencies. The restriction of intervention in influencing the value of the exchange currency and the policy on intervention was consistent with the macro economy needs, and this led to the increased conflicts between the monetary policy stance and the use of intervention. ...