Answering the given questions - Assignment Example

Foreign Exchange theory and Markets al Affiliation Capital controls refers to the set of rules and regulations that govern the rate of capital movement.  Controls are often set in consideration of both outflows and inflows. Within these two distinct categories, it is deemed possible to encompass other additional subcategories that include: credit and investment regulation, foreign exchange regulations, tax and quantitative policies, and trade restrictions (Knight & Satchell, 2007).  Distinctions should hence be made for the reasons why some countries such as Venezuela adopted such capital controls as well as their effectiveness.

Venezuela mainly adopted capital controls so as to protect its domestic economy from the volatile or unpredictable capital movements. The sole aim of doing so was to allow full domestic employment and maximizing of social welfare, saving of foreign exchange and keeping both international and domestic finances under the national control. Generally, the motivations at the back capital controls often ranged from the rising revenues, buying time for managing a speculative aggression, and the international monetary transformation.

  On the other hand, controls were adopted in Venezuela due to its provision of a substitute for insufficient solvency supervision regarding banks and all the other financial firms, reduction of the amount of unstable temporary foreign credits with regards to the prevailing economy, and the aspect of limitation with regards to international financier’s power (Knight & Satchell, 2007). From the Venezuela’s case, there can be a cognitive distinction between the black and gray market. Black market is often not a physical region or place, but is rather a fiscal activity whereby goods and/or services are transacted illegally.

On the other hand, gray market refers to a commodity trade through the distribution channels in which, as much as they can be legal, they are unofficial, unintended, or unauthorized by the primary manufacturer (Knight & Satchell, 2007). The Santiago’s financial analysis is based on its choices and can be summarized in a simple manner. The entire financial mishap was due to the attempt of trying to meet the U.S Dollar obligation. This was after a transaction that saw the disbursement of $30000 worth products from a U.

S based vendor to a specific customer who went to the extent of reselling it. He then opted for a dollar exchange through a gray market whereby there was an involvement in a deposit of up to 20%. This deal was hence sealed after two business days. The un-official gray market rate was Bv3300/&. So, utilization of the gray market seemed to be the most appropriate channel as per the situation.ReferencesKnight, J. L., & Satchell, S. (2007). Forecasting volatility in the financial markets. Amsterdam: Butterworth-Heinemann.