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The Evaluation of the Foreign Currency Regimes Utilised by the Major Countries in the Asian Region - Term Paper Example

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The report contains explanations of the various exchange rate mechanisms utilized throughout the world, as well as the specific mechanisms used by selected countries in the Asian region. The report contains specific details on the strengths and weaknesses of the different exchange rate regimes. …
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The Evaluation of the Foreign Currency Regimes Utilised by the Major Countries in the Asian Region
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Download file to see previous pages A detailed analysis explains that each regime has strengths and weaknesses; however, the pegged exchange rate system has the most drawbacks and the most potential for economic crisis. A free floating system allows the currency to be valued purely by the market however it relinquishes control of the central bank to the world market. A managed float allows for more control over the market and greater currency stability however it has some of the drawbacks of a pegged rate system. The appendices outline currency volatility given the type of exchange rate as well as the strengths and weaknesses of each type of currency regime.
There are a variety of exchange rate mechanisms that a country can choose to use in order to value their currency. Each mechanism has its own strengths and weaknesses and each country creates an exchange rate policy that they feel will help to keep its currency stable. Since the currency crisis of 1997 in the Asia Pacific region, many countries in this region have revised their monetary policies away from a strictly pegged exchange rate system. Pegged exchange rate systems seek to tie the value of one country currency (usually a less stable economy) to that of the currency of a country with a very stable economy. However, it can be difficult for a country to maintain this peg in times of economic crisis. More countries are now moving towards floating or managed exchange rate systems. Floating exchange rate systems allow a currency's value to be determined by the market, in other words, to float freely in relation to other traded currencies. A country that does not have a stable economy may be hesitant to use this method as their currency may be severely devalued in an open market. Managed float systems are a hybrid of a pegged and floating system. In a managed float a country lets its currency float in the market, but only allows it to float within an accepted range compared to other currencies. Outlined below are the exchange rate mechanisms and operations employed by several countries in the Asian region, as well as an analysis of the strengths and weaknesses of the different mechanisms utilized. ...Download file to see next pagesRead More
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