1. The Effects of Interest Rates on Exchange Rates between Two Currencies Interest rates, exchange rates and inflation are related and affect how one country trades with another. Interest rates can be manipulated by central banks so that they have control over the inflation rates and the exchange rates…
Higher interest rates mean that lenders in a particular economy are able to enjoy higher return, more that in countries where there are low interest rates. Further, high interest rates are able to attract foreign capital and lead to high exchange rates. The effects of high interest rates are solved if inflation in a particular country is slightly higher than in other countries. There are also cases whereby the impact of high interest rates can be mitigated through other factors that function to lower the currency (Madura, 1998: 14). Effective exchange rates are usually used to determine country’s currency value in relation to other strong currencies in the index. Some of the world’s currency indexes include the U.S dollar, Japanese Yea and the euro. These currencies are adjusted to lower the effects of inflation in some countries. In addition, effective exchange may also refer to the value consumers are likely to pay for an imported commodity. The price usually comprises of any tariffs and other costs incurred as a result of the process of importation (Somanath, 2011: 220). 2. Inefficiencies in Exchange Rates and Arbitrage Profits Arbitrage profits are made when traders purchase and sell their assets so that they can take advantage of the difference in the price. In particular, arbitrage profits arise due to the exploitation of price differences and takes place in similar financial instruments. In addition, prices can be exploited on different markets as well as in different ways. Arbitrage profits arise due to the efforts geared towards ensuring that prices do not fall from fair value over long periods of time (Clark and Ghosh, 2004: 2). Further, arbitrage refers to the simultaneous buying and selling of a commodity or asset in different markets with the main aim of making profits from the difference in buying and selling prices. For example, the dollar price of a British pound may be 1.70 pounds in London but 1.40 pounds in Paris, a trader can buy 1 pound in Paris then sell that pound in London and make some profit (0.3) per pound sold. If the trader buys 10 million pounds, 3000,000 pounds profit will be realized before any transaction costs, if any exist (Clark and Ghosh, 2004: 2). Arbitrage can be seen as an exploitation of the misalignment of market quotes. In a perfectly competitive market, the evident price differentials that lead to arbitrage profits cannot exist. In essence, arbitrage profit is as a result of market imperfection in which traders buy cheap and sell expensively. In foreign exchange markets, traders have the opportunity to buy and sell continuously. This takes place through the exchange of one currency for another and again for another currency, finally getting back to the original currency in the series of instantaneous transactions, and thus leading to profits (Clark and Ghosh, 2004: 2). 3. Problems of Making Payment in a Foreign Currency in the Future The demand of a foreign currency will certainly affect the price of products to be purchased from that country. Trader therefore, needs to know demand on foreign currencies. The cost of a product may be higher compared to domestic substitutes when the demand of a foreign currency is high. Further, the choice of foreign currency also depends on the investment opportunities available in the particular country and those available in the domestic market. A trader will demand a foreign currency if he or she can transact business cheaply. The demand of a ...
Cite this document
(“Coursework Example | Topics and Well Written Essays - 1000 words”, n.d.)
Retrieved from https://studentshare.net/other/11414-coursework
(Coursework Example | Topics and Well Written Essays - 1000 Words)
“Coursework Example | Topics and Well Written Essays - 1000 Words”, n.d. https://studentshare.net/other/11414-coursework.
The company operates in the energy sector. The company was established in the year 1993 and in 1995 the company was transformed into a joint stock company. In the three years from 1995 to 1998 the company witnessed constant alteration in the management and as a result the assets left unmanaged (Rosneft, 2007—2008).
This also increases utility in the economy as the amount of disposable income will rise. There are also some common secondary objectives of macroeconomic policies. One of these is sustainable growth. This means an increase in growth over a period of time and that which is not affected by the environment and other structural factors.
Some of these legislations include
Employment equality regulations act 2006, which prohibits discrimination, victimization, and harassment on the grounds of age and gender in the areas of employment and areas which provide vocational training.
Reason for the medicine is that her grandson had swallowed lye which is used in soap making and other manufactured products and is extremely poisonous. It causes severe burns in the esophagus as it is caustic but does not cause instant death like
B. In case b, Money functions as a unit of account. It provides a standard measure of the relative value of goods and services. Money relieves Tim from extra costs he could incur in the valuation process.
C. In the third instance, money
United Methodist church is mainly scattered on the eastern counties of US. Members of the Evangelical Lutheran Church in orange can lay claim to a smattering of Midwestern and Western counties, while Mormonism (gray) is, unsurprisingly, the largest religion in
Secondary level; yarn from the second stage is weaved to produce cloth; this process takes place in textile industries based in India. Final step is turning the cloth into the finished result which in this case is a t-shirt. I
t that the changes in the figures from the original ones have led to net losses and also a negative margin of safety, this has been caused by the reduction in the cost of goods sold and also the reduction in sales volume due to low quality products. Therefore some of the measure
Through the reliance on air pressure and steam, Heron was able to construct items which were mostly appreciated as toys as they did not have industrial or commercial use at the time of invention. However, some of the toys that Heron made include the fountain
2 Pages(500 words)Coursework
GOT A TRICKY QUESTION? RECEIVE AN ANSWER FROM STUDENTS LIKE YOU!
Let us find you another Coursework on topic Coursework for FREE!