The two exchange rate systems have their advantages and disadvantages in their application in a country’s economy. The advantages of the fixed exchange rate system include stimulating international trade as they offer much more stability for both importers and exporters and as such, they do not have to worry about the effects of currency appreciation and depreciation. Fixed exchange rate systems are also said to have a bit of control over the speculative nature of importers and exporters and thus reduce to a certain extent speculative activity in trade practices. This regime disadvantage can be depicted in the inefficiency of a country’s economy. This happens as a result of the government’s artificial support of the exchange rate which means it does not change accordingly with changes in the prevailing economic conditions and thus may loose out from the benefits that would be felt in the economy if the rate was adjusted according to the existing conditions. Furthermore, the dependence of interest rates on the exchange rate can lead to reduced economic growth of a country in cases where they differ greatly with those being experienced in the market. In cases where one of the countries involved in the fixed exchange rate system agreement has a weaker economy, it may be dominated by the country with a stronger economy and at the same time undermine the prevailing market situation in the country with the weaker economy.
Similarly, the flexible exchange rate regime has its advantages and disadvantages. The major advantage of this regime is its flexibility as it allows a country’s economy to adjust quickly to prevailing market conditions. This system also determines the interest rate in a country allowing for effective control of the economy in order to create balance. Despite its advantages, the flexible exchange rate system may lead to volatility in the market as it does not encourage ...
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(“Monetary Economics in Developing Countries Essay”, n.d.)
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(Monetary Economics in Developing Countries Essay)
“Monetary Economics in Developing Countries Essay”, n.d. https://studentshare.net/miscellaneous/386374-monetary-economics-in-developing-countries.
These issues were discussed in consideration to the specific aspects of liberalization and development such as removing tariff and nontariff trade, agriculture, manufacturing, and services. While this paper examines in bold strokes the liberalization thrust in North African countries, it also took time to highlight some pressing issues such as free trades effect on the capacity of North African countries for economic growth and providing its citizen higher level of social services such as Health, Education among others.
Consequently the study of exchange rates has emerged as a crucial field of economic research since the last few years. This particular field of research has received a tremendous boost, especially in the era of the Bretton Woods in which the foreign rates of exchange became extremely volatile since the inception of the floating rates of exchange since 1973.
This was seen as a major source of income for the developing countries, but only the dependence on primary exports brought very less income to the firm. Import substitute industrialization Import substitute industrialization is a trade strategy, which has become highly popular in the developing countries.
However, since the inception of free trade, the world has experienced widespread increase in economic inequality. Poverty, especially in some developing countries is increasing at an alarming rate, while developed countries are experiencing improved living standards and economic development.
Seemingly, global imbalances will continue for some time. Dealing with this issue is difficult to achieve as most of the economies are run by external focus on international consistency.A call for cooperation and coordination is of great need. The international systems of finance have identified faults in an attempt to deal with imbalances.
Moreover, China's exchange rates, the Renminbi (RMB) to the US dollar and other foreign currencies have pushed its export commodities prices much lower, which in turn have boomeranged to the other countries' currencies. This vicious cycle prompted Roach to conclude that "China is one of the sources of current world deflation" (People's Daily, 2002).
Developing countries are faced with low standards of living, underdevelopment, and high poverty levels, weak and unstable currencies, low capital levels and low GDP. All the above problems faced by developing countries are caused by debts which affect not only those who acquire loans but also generations that follow.
f each of the developed countries has formulated and implemented the monetary policies that has affected and influenced the capital inflow and outflow of the capital across the countries all over the world.
The role of the floating exchange rate in controlling the inflow and
Moreover, if the PPP is held continuous, the domestic currency would depreciate by the same amount restoring the equilibrium. Thus, the flexible price model of exchange rate determination simply put entails that money demand and supply
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