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The Exchange Rates Sphere of the Macroeconomic Arena - Assignment Example

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In the paper “The Exchange Rates Sphere of the Macroeconomic Arena” the author discusses one of the more tangible issues of macroeconomics i.e. issues that directly affect people and do so in a really short period of time and a basic understanding of this area is deemed to understand macroeconomics…
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The Exchange Rates Sphere of the Macroeconomic Arena
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Download file to see previous pages There are certain benefits and certain disadvantages associated with each and every trading system and so does the free-floating exchange rate, the free-floating exchange rate is the basis of uncertainty in the economy because there are no blockades at an end for the free-floating exchange rate to be limited, it fluctuates rapidly and hence the environment for trade and investment is not a very feasible one. Another added disadvantage of this type of this kind of exchange rate is the element of speculation. The advantage of the exchange rate system is that it balances the balance of payments and the governments do not have to worry in this regard.
b)Dirty Floating: dirty floating, as the name implies is managed exchange rate systems, these systems are managed by the central bank of the country and it basically determines boundaries within which to keep the exchange rate value, if the rate crosses the maximum value then the central bank supplies more into the market so that the rate falls down and when it rises exactly the opposite happens. The advantage of having such an exchange rate system is that it adds a lot of certainty to the trading and the investment procedures and cracks down on speculative measures. The disadvantage of this system is basically to the government because it has to take measures to control the whole system and also the added responsibility of the balance of payments falls squarely on to the shoulders of the present government.
c) Fixed exchange rates: In this type of exchange rate systems the rate is fixed at one point and the government should be ready to buy and sell. As the graph above indicates that the value for the dollar against other currencies has been falling consistently because of the aftermath of the world trade center tragedy. The dollar has fallen by 15% against the Euro, 18% against the Australian dollar and 21% against the pound.  ...Download file to see next pagesRead More
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