This paper attempts to examine the implications for an economy of a rising foreign exchange rate. Foreign exchange rate is defined as the value of a specific currency compared to that of another currency…
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There are two types of foreign exchange rate, the spot exchange, and the term forward exchange rate. The first is defined as the rate that is currently applicable, while the latter is defined as the rate that is currently quoted and used for trading.
Foreign exchange rates are determined by either a fixed rate, or a floating rate regime. A fixed rate regime of foreign exchange means that the value of the currency against a foreign currency is determined by the government through its central bank. A floating rate regime determines the value of the currency based on the dictates of the market, hence, through supply and demand principles. The private sector largely determines the appropriate exchange rate in a floating rate regime.
Foreign exchange is among the three frequently used indicators to assess the health of an economy. The other two indicators are the interest rate and the inflation rate. However, it is said that foreign exchange plays a vital role in the country’s level of trade, which is critical to most free market economy in the world. Such importance has made its role in the economy critical, and with its impact, it has thus became the “most watched, analyzed, and governmentally manipulated economic measure”. ...
A large, consistent government deficit, crowding out domestic borrowing, 5. A strong domestic financial market. 6. strong domestic economy relative to weaker foreign economies, 7. No record of default on government debts, 8. Sound monetary policy aimed at price stability, and 9. Political or military unrest in other countries. A combination of the above conditions will give rise to a stronger currency. Some of them may be construed as a sign of good economic housekeeping. But who directly benefits from a strong currency, and who will eventually lose out if a strong currency prevails over a longer period of time? How does a rising foreign exchange rate, then, make its impact on the economy? Foreign exchange rate would move in two directions. It moves either up or down (an appreciating or a depreciating currency). In either direction, however, it impacts the economy with some sectors being positively affected, and some sectors being negatively affected. It is therefore a question of balancing or mitigating its impact by government regulators in order to as much as possible keep all stakeholders happy. A rising foreign exchange rate, as stated, primarily affects a country’s exports by making them more expensive for other countries to buy. They will become more expensive to importing countries and are therefore less competitive compared to other countries. Economies whose growth is generally export-led and are relying mainly on income from exporting goods and services will be highly affected by a continuously appreciating local currency. It is the exporting sector of the economy who bears the brunt of an appreciating currency, where their produce have become less competitive in the global market relative to other similar commodities from other countries. Thus, a
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The exchange rate of a currency is defined as the price of that currency in relation to other currencies. The major currencies of the world such as the US dollar and the Euro act as a standard for evaluation of the performance of a country’s currency.
This is in terms of the quality of life led by the citizens. Some critics however have found that the use of national income data is not 100 percent reliable indicator of standard of life (Miller, 2011). The business cycles in an economy would influence standard of living.
Its main benefit arises from the reduced interest rates and expansion in money supply. In this context, the focus is Germany; a large country with a dynamic system of open market and economy that is both affected and influences the foreign market through international intense competition in the mobile capital, technology and world products in the market.
It is not that an unexpected increase or decrease in the foreign currency may not be profitable and will always cause a loss.But this entire uncertainty hampers businesses and overall economic growth.Furthermore due to the volatile and unpredictable nature of the forex markets during times of political or economic crisis the forex markets carry a considerable risk for the multinational firms.
A floating exchange rate, also called s flexible exchange rate is "a type of exchange rate regime wherein a currency's value is allowed to fluctuate according to the foreign exchange market" (Wikimedia Foundation, Inc). In the field of economics, we say that it is "determined by the private market through supply and demand" (Investopedia).
Similarly, International Financial Institutions (IFIs) provide financial services for countries, regional and territorial governments while enabling them to carry on with economy-boosting steps. International financial institutions (IFIs) are also increasingly involved in conflict situations in countries in which either violations of international humanitarian law are widespread and devastating to the civilian population and the countries' economic prospects, or the overall economic situation of a country is so weak that it may not hold itself and default anytime.
Developments in the part of the economy that is sheltered from the world market play a major role in determining the behavior of the real exchange rate and hence of the current account. Among the important components of this sector are certain types of capital goods and a variety of construction goods and services.
Malay, Mon and Khmer civilizations flourished in the reason prior to the arrival of ethnic “Tai”. Geographically the area of Thailand is 513,115 sq. km; equivalent to the size of France, or slightly smaller than Texas. Beautiful city of Bangkok is the capital of
This was followed by the export of Sugarcane in the 16th and the 17th century. In the 18th century precious metals and other gems was the main export commodity. In the 19th century the commodity that was exported was coffee (Embassy of Brazil in Wellington,
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