The Main Duty of the Foreign Exchange Market - Essay Example

? Research Portfolio Research Portfolio Question Overview The main duty of the foreign exchange market is to open the door for global regulations associated with global trade: people who export want to be paid in foreign currency since they want money to pay their workers or suppliers (Imbs et al., 2005). Each time there is a global business transaction, there is also a foreign exchange contract. One issue that is distracting this sector is the fluctuation of currency. These fluctuations affect foreign exchange, as well as also global and local business. Organisations are put to exchange dangers (Peel, 2000). This signifies that for a similar product or service, if a firm contracts with the vendor for a specific volume because of rate fluctuations, then they will be paying extra. The customs duty structure is openly related to such rates that will have more impact (Taylor, 2004). Cash loss also enhances thereby damaging the working capital needs. In essence, this openly plunges the productivity of a business. Research Questions/Topics Some of the research questions that this paper seeks to answer include the causes, as well as effects of the global financial crisis (Evans & Lyons, 2003). Such a topic is extremely important as the global financial crisis are considered to have been brought about by miscalculations in the foreign exchange market. Another research topic is the assessment of changing patterns of global comparative advantage along with its policy implications. The third question includes how major world exporters and importers are dealing with the issues affecting foreign exchange market. It would be interesting to know how major economies in the world are trying to deal with these issues affecting foreign exchange (Evans & Lyons, 2003). Fourthly, another question includes factors leading to the exchange rate volatility in major world economies. Finally, the fifth question would be how the issues affecting the foreign exchange market affect trade, productivity and employment. Data Required This study will incorporate nations such as the United States, United Kingdom, China, Germany, Brazil and other key world traders. The paper selected these nations because they are the ones who are always on the media discussing the issues in the foreign exchange market. Also, major companies will also be incorporated in this study, such as car exporting firms and food importing firms among others and the sample size will be nearly 50 respondents. The study will take place over two months, and some of the variables that will be studied in the survey include causes, as well as effects of the issues in the foreign exchange market, who are being affected and what is being done to deal with these issues. Proposed Methodology The study on foreign-exchange intervention is all about empirical research. The paper includes a wide range of experimental techniques and strategies. The various methodologies presented diverse types of problems about which anybody evaluating this paper’s results should be mindful. It is vital to include both primary and secondary sources effectively to come up with the information of the topic (Lothian & Dijk, 2006). Primary information could be gathered from business managers or owners of the business while secondary data could be gathered from already published sources of this topic. The overarching issue, which confronted this empirical survey, was the simultaneous determination of bureaucrat intervention, as well as exchange-rate changes. Since the study lacked an adequate amount of high frequency sources, I generally did not apply standard numerical techniques to this issue. Question 2 Overview Market structure indicators like the number of banks, as well as banking concentration, usually have been regarded as the main determinants of business rivalry in the banking sector. However, critics argue that these variables have no important impact on market power (Angelini & Cetorelli, 2003). Firm rivalry in the banking market is of huge financial significance since it lowers prices and enhances quality, therefore contributing to the success of clients and organisations alike (Angelini & Cetorelli, 2003). In addition, competition fosters ground-breaking behaviour, persuades banks to enhance their effectiveness, thus advancing the access of firms and households to financial services, as well as external finance, and; therefore, leading to economic growth (Bikker et al., 2007). In addition, the connection between financial stability and competition has been acknowledged in empirical and theoretical research, along with the conduct of prudential principles in line with banks (Angelini & Cetorelli, 2003). Finally, competition enhances the monetary diffusion of policy rates to bank market rates. Research Questions Some of the vital study questions that could be asked with regards to this topic include does the banking market structure, in reality, affect the performance of a firm and how firms, which rely on this notion, (their performance is affected by the banking structure) are affected. This question is particularly significant because a majority of organisations are said to be buried in this thought that they can be effective when under an effective banking structure (Bos, 2004). The third research question is the effect of the market structure/organisation on firm performance (Seelanatha, 2010). The fourth question is the connection between size of the firm, effectiveness of the intermediation process and organisational structure. The final question is how socialist nations are dealing with this notion because they normally do not compete in the financial market, but seek to develop each other. Data Required In this paper, we opt for the Panzar-Rosse measure. Many articles rooted in P-R models claim that this approach is mainly identified as valid (ECB, 2006). In addition, the P-R approach has a tough theoretical foundation. This paper extends Claessens and Laeven (C&L) through assessing the variables of banking rivalry for a much larger set of nations (120) from 1995 to 2004. We use a detailed data set obtained from Bankscope. The data set includes 25,000 public and private banks from all around the globe with relatively standardised reporting data, which facilitate comparison across diverse accounting organisations. The panel data set is somewhat extensive including banks in 120 nations and spanning the years 1995 to 2004. Methodology This paper’s methodology is different from C&L on many points. In essence, the paper used a diverse form of P-R to calculate competition and do a number of robustness checks to study the quality of its determinants-of-competition model. As shown by Bikker et al. (2007), the Panzar-Rosse model, which is mainly used in a majority of literature, is misspecified. This paper went ahead to conduct one on one interviews with bank managers and company executives in order to confirm the validity of its findings. References Angelini, P & Cetorelli N 2003, 'The effects of regulatory reform on competition in the banking industry,' Journal of Money, Credit and Banking vol. 35, pp. 663-684. Bikker, J A, Spierdijk, L and Finnie, P 2007, The impact of market structure, contestability and institutional environment on banking competition, Tjalling C. Koopmans Research Institute, Amsterdam. Bos, J W 2004, 'Does market power affect performance in the Dutch banking market? A comparison of reduced form market structure models,' De Economist vol. 152, no. 2, pp. 491-512. ECB 2006, EU banking structures, European Central Bank, Frankfurt, Germany. Evans, M D & Lyons, R K 2003, Exchange rate fundamentals and order flow, Georgetown University, Washington, DC. Imbs, J Mumtaz, H, Ravn, M O & Rey, H 2005, 'PPP strikes back: aggregation and the real exchange rate,' Quarterly Journal of Economics vol. 120, no. 44, pp. 1-44. Lothian, K & Dijk, V 2006, 'Foreign exchange markets: overview of the special issue,' Journal of International Money and Finance vol. 25, no. 1, pp. 1-6. Peel, D A 2000, 'Nonlinear adjustment, long-run equilibrium, and exchange rate fundamentals,' Journal of International Money and Finance vol. 19, no. 4, pp. 33-53. Seelanatha, L 2010, 'Market structure, efficiency and performance of banking industry in Sri Lanka,' Banks and Bank Systems, vol. 5, no. 1, pp. 20-34. Taylor, A M 2004, 'The purchasing power parity debate,' Journal of Economic Perspectives vol. 18, no. 3, pp. 135-158. Read More