StudentShare
Contact Us
Sign In / Sign Up for FREE
Search
Go to advanced search...

Dollar pegging and curreny basket - Essay Example

Cite this document
Summary
Kuwait is the first country to switch to a basket of currencies regime and the system is most likely to be followed by the rest of the…
Download full paper File format: .doc, available for editing
GRAB THE BEST PAPER91.2% of users find it useful
Dollar pegging and curreny basket
Read Text Preview

Extract of sample "Dollar pegging and curreny basket"

Download file to see previous pages

As the oil producing countries are getting more capital due to rising oil prices, people have more spending power and the relative commodity prices increase in the domestic economy. Table 1 shows the inflation rates in gulf countries over three different periods: 1980-81 (high inflation), 1986-2003 (low but volatile inflation) and 2006-07 ( current inflation situation). As chart 1 and Table 1 show falling dollar contributes to high oil prices that in turn lead to high inflation. On the other hand when the state of dollar is normal the oil prices remain average and hence the result is low inflation (Garriga and Armesto, “A Falling Dollar Raises Inflation in the Gulf”).

After de-pegging from dollar, new exchange rate was governed by the basket of currencies that helped to stabilize the effect of depreciating dollar on the exchange rate of Kuwaiti Dinar in the world market. Due to this basket of currencies which included a good proportion of Euro allowed checking rising import rates due to depreciation of dollar against Euro. This further helped in controlling inflation which was rising due to increase in imports from European and exports to Asian countries. “Since 1980 the Bahraini dinar and the Qatar riyal have been pegged to US dollar at the rate of 0.

37 per $ and 3.64 per $, respectively. Likewise, since the 1980s the Saudi riyal (1986) and UAE dirham (1981) are fixed at a rate of 3.75 per $ and 3.67 per $, respectively” (Hebous “On the Monetary Union of the Gulf States”). The exchange rate of a currency is determined by the “purchasing power parity”. For eg. If 10 gms of 24 carat gold can be bought with 1 USD and same amount of gold can be purchased with 4 Qatar riyal then 1$ equals to 4 Qatar riyal. This is how the exchange rate of every currency is determined in the world market (Saville “How are currency exchange rates determined”).

“The value of a currency is usually determined by the demand for and supply of that currency.” For

...Download file to see next pages Read More
Cite this document
  • APA
  • MLA
  • CHICAGO
(“Dollar pegging and curreny basket Essay Example | Topics and Well Written Essays - 3500 words”, n.d.)
Dollar pegging and curreny basket Essay Example | Topics and Well Written Essays - 3500 words. Retrieved from https://studentshare.org/miscellaneous/1545800-dollar-pegging-and-curreny-basket
(Dollar Pegging and Curreny Basket Essay Example | Topics and Well Written Essays - 3500 Words)
Dollar Pegging and Curreny Basket Essay Example | Topics and Well Written Essays - 3500 Words. https://studentshare.org/miscellaneous/1545800-dollar-pegging-and-curreny-basket.
“Dollar Pegging and Curreny Basket Essay Example | Topics and Well Written Essays - 3500 Words”, n.d. https://studentshare.org/miscellaneous/1545800-dollar-pegging-and-curreny-basket.
  • Cited: 0 times

CHECK THESE SAMPLES OF Dollar pegging and curreny basket

Events Leading to Hyperinflation in Zimbabwe from 2007-2008

Name: Course: Date: Events Leading to Hyperinflation in Zimbabwe from 2007-2008 International monetary theory and policy deals with exchange rates in interdependent economies.... It is also concerned with balance of payment issues.... With globalization the world has become a global village where goods and services, labor and capital are exchanged freely in the market....
9 Pages (2250 words) Research Paper

The Economic Dragons Threatening Our World

This case involves a rich East Asian nation with a pegged currency fixed to the US dollar for ten years.... “A rich East Asian nation with a pegged currency fixed to the US dollar for ten years, supported by a monetary policy of tight capital outward flows and unrestricted inflows is experiencing an upward pressure on the exchange rate....
12 Pages (3000 words) Research Paper

The Main Sources of Foreign Currency Risk Confronting an International Firm

Although transaction exposure cannot be completely netted away ,the company is better off making a small in one area of trade that a large loss overall if it literally "puts all its eggs in one basket".... A thorough knowledge of international risk exposures and the relevant techniques for avoiding them is very important for multinational firms....
5 Pages (1250 words) Essay

Will US dollar lose its role as the global reserve currency before 2050

For approximately seventy years to date, economies have relied on the US dollar as the world's reserve currency, as a standard unit of accounts, for exchange rates and to store value.... Decades down the line, most governments have purchased the dollar as securities and acquired… However, the system once adopted and appreciated by governments and their civilians many years down the line is in the modern times questioned, over its suitability in remaining the global reserve currency, come 2050....
5 Pages (1250 words) Essay

Treasury and Risk Management in an International Context

Fixed exchange rate system aims to fix the value of a currency against the value of a stronger currency, a basket of currencies or other measurements like gold.... For instance, increase in inflation rate will directly impact on a currency pegged with US dollar; however, if the currency is pegged with a basket of currencies, the effect of increasing inflation in the US will be diluted by the presence of other currencies and will have less impact on the pegged currency....
12 Pages (3000 words) Assignment

Exchange Rate Policy in the Gulf States

The writer of the document will evaluate the current performance of the US dollar in the Middle East.... Further, many analysts are also indicating the recent movements in the oil price as one of the most critical reasons for bringing in the changes into the exchange rate regimes in GCC countries as most of the OPEC members believe that the mismanagement of US economy and weakening dollar against major currencies of the world is a cause of concerns as revenues continue to dwindle despite maintaining adequate supply in the market....
6 Pages (1500 words) Literature review

Hedging as a Strategic Option at the Firm Level

The paper “Hedging as a Strategic Option at the Firm Level” advices the company to choose a more strategically efficient form of the hedging strategy in order to attain long term organizational goals such as correct corporate governance, positive returns and share price growth.... nbsp;… Bonds and stocks can both be exposed to changes in real exchange rates and the subsequent risk factor has a dichotomous outcome for the two investment vehicles....
11 Pages (2750 words) Coursework

Foreingh Exchange Risks

The Hong Kong dollar is linked to the US dollar and the Linked Exchange System has been in existence for last two decades.... The link is maintained through the strict Currency Board System ensuring that the entire monetary base is backed by the US dollar at the linked exchange rate....
11 Pages (2750 words) Assignment
sponsored ads
We use cookies to create the best experience for you. Keep on browsing if you are OK with that, or find out how to manage cookies.
Contact Us