StudentShare
Contact Us
Sign In / Sign Up for FREE
Search
Go to advanced search...
Free

Foreign Exchange - Essay Example

Comments (0) Cite this document
Summary
Some think the current system of managed but floating rates is too unstable. What would generate the instability? The Bretton Woods system is a landmark system designed for monetary exchange rate management that came to play in 1944…
Download full paperFile format: .doc, available for editing
GRAB THE BEST PAPER92.1% of users find it useful
Foreign Exchange
Read TextPreview

Extract of sample "Foreign Exchange"

Foreign Exchange Question How did the Bretton Woods system operate? What caused its collapse? Some think the current system of managed but floating rates is too unstable. What would generate the instability? The Bretton Woods system is a landmark system designed for monetary exchange rate management that came to play in 1944. The Bretton Woods agreement was developed in New Hampshire in 1944. The major outcomes of the agreement were the formation of an International Monetary fund. The system proposed the introduction of a pegged foreign monetary exchange rate system that was adjustable. Under the system, other than U.S, other countries central banks were assigned the task of maintaining a fixed exchange rate between the dollar and their respective currency. This would be done by intervening in the market of foreign exchange. The system lasted up to 1971. Inflation in the U.S and the trade deficit were undermining the dollar value. The U.S abandoned the system allowing the dollar to ‘float’ instead of fixing it. The current system is stable as it provides for variables like trade deficits and inflation. The dollar is fived by the markets. However, depreciation, which causes a rise in prices in the domestic markets, will destabilize the system. Question 2: What is foreign aid and what is the goal of foreign aid? Does foreign aid promote economic development? Explain briefly Foreign aid is described as the international transfer of services, goods, or capital from an international organization or country for the benefit of another country (McEachern, 2012). Foreign aid can be in form of military aid, humanitarian aid or monetary aid. The goal of foreign aid is to help countries in need to increase their capabilities of achieving their goals. Foreign aid is intent on helping countries receiving help improve their ability to be secure, defend their borders, or improve trade. To some extent, foreign aid does promote economic development. Countries like South Korea and Taiwan have grown economically backed by foreign aid. Foreign aid will mostly come with conditions, goals, and projections. This means that aid must be utilized to achieve goals set. In a majority of cases, it is given for development projects that stimulate economic development. Foreign aid will also free up some of the countries spending and it can be directed towards development projects. Question 3: Why can’t all the balance of payments accounts be in surplus? What factors determine the demand for British pounds in foreign exchange markets? How are exchange rates determined under a flexible exchange rate system? Imbalance in a country’s balance of payments is caused where payments a country makes are less compared to those received. This is what that is termed as a favorable balance of payment. However, there are consequences caused by factors like production, unemployment, and inflation. A balance of trade surplus is the cause of balance of payment surplus. However, other payments will turn a balance of trade surplus to a deficit. This means not all balance of payments accounts will be surplus. The British pound will be influenced and determined by a number of factors with respect to the foreign exchange markets. If the British inflation is relatively low, exports will be more competitive driving up the demand for the pound. If the British interest rates raises, relative elsewhere, Britain becomes more attractive to deposit. This will increase demand for the pound. Demand will also be determined by balance of payments, government debt, and relative strength of other currencies. Question 4: How can two countries both be better off as a result of trade? How can tariffs protect U.S. Jobs? Do tariffs lead to a net increase in jobs? Explain. Who are the winners and losers from trade restrictions? Give that trade restrictions impose losses on an economy, why are trade restrictions so common? Countries will be better off as a result of trade if they use it to enhance domestic competitiveness. Competition will result in production of higher quality goods. Countries are also better off if they take advantage of technology brought about by international trade. Increases in sales and profits are beneficial to countries. Countries also reap from gaining a global market share for their goods and services. The creation of a competitive advantage for domestic and foreign manufacturers is a violation of the principle of the U.S trade agreements with other countries. Tariffs are an effective tool to adjust market price of goods that are imported. This discourages exportation of jobs to cheaper markets, thus, eliminating other countries competitive advantage. Tariffs hurt and are of advantage most to the country that imposes them. Tariffs will result in increased government revenues, in turn benefitting the economy. A healthy economy translates to a net increase in job creation. Consumers and foreign producers are the losers from trade restrictions and tariffs (Bade & Michael, 2002). The government is the major winner as it increases its revenues. Trade restrictions are there to control the market and protect the country’s interest and economic gain Question 5: Describe developing countries and how they differ from industrial market economies. How can international trade aide development? In what ways does the international economy impose problems on developing countries? Developing countries are the countries that do not possess the high-level development structures in place in terms of infrastructure, industrialization, and Per capita income. Developing countries when compared to developed countries (industrial market economies), have low per capita incomes, and are below per in terms of economic and political stability. International trade will aid development in developing countries by way of increasing revenues and resources that are achieved (Bade & Michael, 2002). Good foreign relations aid and result in free trade. Developing partners benefit from this and attain trading friends. Developing countries continue to incur huge debts because of loans granted by developed economies in the international economy. This means that as much as they continue to benefit, these countries will always have a debt crisis to deal with in the long term REFERENCES Bade, R. & Michael, P. (2002). Foundations of Microeconomics, Boston, MA: Addison-Wesley McEachern, W.A. (2012). ECON Macro 3 (3rd ed.), Mason, OH: South-Western Read More
Cite this document
  • APA
  • MLA
  • CHICAGO
(“Foreign Exchange Essay Example | Topics and Well Written Essays - 750 words”, n.d.)
Foreign Exchange Essay Example | Topics and Well Written Essays - 750 words. Retrieved from https://studentshare.org/macro-microeconomics/1474221-foreign-exchange
(Foreign Exchange Essay Example | Topics and Well Written Essays - 750 Words)
Foreign Exchange Essay Example | Topics and Well Written Essays - 750 Words. https://studentshare.org/macro-microeconomics/1474221-foreign-exchange.
“Foreign Exchange Essay Example | Topics and Well Written Essays - 750 Words”, n.d. https://studentshare.org/macro-microeconomics/1474221-foreign-exchange.
  • Cited: 0 times
Comments (0)
Click to create a comment or rate a document

CHECK THESE SAMPLES OF Foreign Exchange

Has Bush Pursued a Realist Foreign Policy

This discussion will address what will define the entire Bush Presidency, not simply the foreign policy aspect; the illegal, immoral and unrealistic decision to invade Iraq.
The ‘War on Terrorism’ as it is commonly referred to, was a phrase coined by United States government officials and is primarily used to justify the military initiative de jour. It is generally defined as the current conflict between the U.S. and radical Islamic factions with Great Britain being somewhat allied in the effort (Gallington, 2004). Immediately following and as a reactionary response to the 11 September 2001 terrorist attacks on America, Bush stated the country’s intent to initiate a ‘War on Terrorism.’ He charact...
9 Pages(2250 words)Assignment

The Foreign Policy of the European Union

There was a need for the same as well more so because the rulers of the respective nations wanted their own particular identity and this brings us to the question that if they needed such an identity what was the need of having European Union (EU)? They could have easily made a body comprising of two or for that matter three countries and enacted their own policies and gone about it in the long run but bringing all the European nations together to a single platform only means that there was a courteous move behind the very same. There was an understanding that since these nations had so much in common amongst each other, thus there should be an understanding as concerns to their oneness and unity which could only be achieved throu...
12 Pages(3000 words)Term Paper

Putins Foreign Policy Changes during His First Presidential Term

Our world, since its ‘origination’ has been a ‘hotbed’ of activity. Activity in the sense, we humans have been showing activeness both mentally and physically, which have transformed our globe from a primitive one to an advanced one. The activities are normally carried out by humans, organizing or segregating themselves into different countries or nations. It is common knowledge that for a country to reach the top echelons, its leader has to be very capable and strong. That is, a capable and strong leader will only be able to provide a better life and future for his/her country and its citizens. From time immemorial, the success or failure of a country depends on the role, the leader plays. The leader is th...
82 Pages(20500 words)Dissertation

Currency Exchange as a Key Instrument of International Commerce

The globalization movement created a greater need to determine the equivalent valuation of monetary units also referred to as the exchange rate in order to execute a trade of goods among nations. Currency exchange is the trade value of one unit of currency into another currency which is required to facilitate the trade of goods and services among nations. For example, as of January 9, 2008, the currency exchange market value of one Euro was 1.47 US dollars (Yahoo, 2008). The exchange is a market mechanism that is very instrumental in the monetary policy of the nation. Both the developing nations and a developed nation must instill a sound monetary unit strategy to create a stable currency that is both liquid and valuable in the ma...
10 Pages(2500 words)Term Paper

Different Models of Exchange Rate Determination and Their Empirical Support

Specifically, some of the discussed models of exchange rate determination are the balance of payment approach model, the monetarist or asset approach model, and the martingale-random walk model. Moreover, the paper will also integrate the experiential observations and examples during the paper, in order to understand the practicality of these models.

Under the balance of payment approach, the domestic cost of foreign currency is established like the cost of any other article of trade. In other words, the market demand and supply curvatures are intersected in the exchange market for that particular foreign currency. The modeling of the abovementioned approach related to the demand and supply for foreign exchange is quite...
13 Pages(3250 words)Term Paper

United States Foreign Policy from 1945-1991

American Presidents presiding over some key events in history, such as the Cuban Missile Crisis, The Cold War, The Vietnam War, etc., were hindered from acting as public representatives due to pressure from the military-industrial complex. John Kennedy, Lyndon Johnson, Ronald Reagan, George Herbert Walker Bush, and George W. Bush – all of them were subject to these opposing interests. But eventually, the corporate-government nexus proved too powerful; and in this sense, American Presidents after the Second World War were largely restricted and powerless to uphold their higher personal values. Most of the strategic moves on part of the United States after the end of the Great War were directly in response to an anticipated th...
11 Pages(2750 words)Essay

The Challenges of Foreign Market

Any multinational company is exposed to risks such as change of foreign currency exchange rate, commodity prices, and interest rates because it denominates its transactions in foreign currencies. That’s why there is also some uncertainty in future earnings, liabilities and assets values.
Therefore, before taking a decision on the country of entry, a profound analysis of its current political and economical situation is to be performed. According to Kotler and Armstrong (351-361), a decision on whether to enter a foreign market should be based on a profound analysis of potential risks and opportunities, as well as the company’s internal resources.
The company is a Limited Liability that exports roasted and gro...
11 Pages(2750 words)Case Study

Foreign Market Entry and Diversification

...Foreign Market Entry and Diversification Table of Contents Identification and discussion of the trendsin the global beer markets 3 International expansion trends and Modelo’s internal expansion 5 The next foreign market Modelo should enter 6 Challenges from InBev 7 Modelo should diversify 8 References 10 Identification and discussion of the trends in the global beer markets Beer industry is one of the largest industries in the world. Over the last few years the entire alcohol industry enjoyed a satisfactory performance. In 14th century modern beer industry started in Europe. Since the tastes of consumers vary from region to region, the industry was clustered in nature and it was dominated by several local breweries. Earlier transportation...
7 Pages(1750 words)Assignment

The Link between the Current Account and Changes in a Countrys Net Foreign Wealth

...of the problem such as trade deficit is not resolved. Thus, any remediation effort will only have a palliative or temporary effect. Depletion of foreign exchange reserves due to trade deficit can be corrected either by borrowing or by asking for aid which would nonetheless prove to be a disaster for the country as the inflation remains high and economic activity is hindered due to the high cost of production but low income returns. Factor Income – These are the revenues derived from assets in an economic cycle. This would include earnings from the assets. That would include interests from deposits or rental from real estate assets. This will also include earnings from bearer bonds and other instruments...
6 Pages(1500 words)Term Paper

Entry into Foreign Market

However, political instability and turmoil are yet a few of the hindrances which could affect the stock markets and in a worst-case scenario may as well, completely shut down businesses (Root 1982). The new business practices, on the other hand, involve a transparent setup and a free market, free of turmoil to operate and maximize production (Bennett 1998). Also, in such a case, the consumer must also be able to spend on the product, to make it a success. However, Burma currently has strong institutions having a hold on the resources which need to be exploited, i.e. a few of the military generals and autocrats have access to the resources, and thus, dealing with these groups might prove to be a waste of the corporation`s own effor...
6 Pages(1500 words)Assignment
sponsored ads
We use cookies to create the best experience for you. Keep on browsing if you are OK with that, or find out how to manage cookies.

Let us find you another Essay on topic Foreign Exchange for FREE!

Contact Us