The country’s economic welfare deteriorated soon before and after joining the ERM. Interest rates, inflation, and economic growth were critical to control as far as UK’s was concerned. Even after experiencing a boom in late 1980s, a…
Download file to see previous pages...
When UK joined the ERM, her DM rate stood at 2.95, slightly above the minimum requirement for the euro zone (Friedman and Woodford 182). In a bid to migrate the ERM loss, UK should have tried not to overvalue the pound. The overvaluation caused ripples in economic markets, allowing speculators to make profits at the expense of economic failure.
Drawing from the above diagram, UK government could have migrated losses by avoiding buying of pounds using foreign exchange reserves. As the diagram suggests, 1990 and 1992 exhibits inhibited economic growth and significantly high inflation. Artificial overvaluation of the pound under such circumstances proved catastrophic to the UK.
By 1992, UK base rates were on a decline trend as the above diagram suggests. However, the actual scenario on the ground was different. UK had revised interest rates upwards, an aspect that further accelerated economic failure. In response, UK left ERM, cut interest rates, and embarked on economic growth stimulation through inflation reduction, housing market corrections, and employment
...Download file to see next pagesRead More
It was suggested by Obstfeld and Rogoff that the exchange rate is the single crucial relative price in the economy because it spreads into a vast range of other transactions. But since the inception of the floating rate in the 1970s and 80s the exchange rate has become too volatile in the short term range to be fully explained by the fundamental based exchange rate theory.
Foreign exchange market is a platform where buyers and sellers from all over the world buy, sell and discuss different matters that are related to different currencies. Such markets are very big and can be liquated easily and because of this reason they are considered as very well-organized monetary markets.
It has traditionally performed the role of converting one currency into another (Madura, 2009). It is consistent with the principles of market economy laid down by Adam Smith, according to which the value or price of a currency is determined by the market forces of demand and supply.
Sometimes anticipatory buying of the foreign currency drives the market. Anticipation can destabilise Foreign Exchange Markets. This is because the participants tend exchange their national currency more or less depending on the expected exchange rates.
While the notes referring to, deals with legal document that compels a borrower to repay a mortgage loan at a specified interest rate for a specific period time, which is also called 'Promissory notes'. Additionally, 'Checks' means a negotiable instrument drawn against deposited funds, to pay a specified amount of money to a specific person upon demand, such like bill of exchange and draft.
The developments recorded by market economy forced even bloc countries and China to shift from plan to market economy. China gained high profile in the manner it developed the markets. This is due to flexibility in imports and exports and giving permissions for permissions.
John Sloman (1999)
Individuals participate in the foreign exchange market for a number of reasons. On the demand side, one principle desire for foreign currency is to purchase goods and services from another country or to send a gift or investment income payments abroad.
the price of one currency in terms of another currency. The trading between currencies takes place in the foreign exchange market. Till today, FOREX is the biggest financial market in the whole world. The trading between the different banks like the central banks, the large banks, the multinational corporations, the trading between governments of different countries and other financial markets takes place in the FOREX market only.
So foreign exchange markets deals with each nation's currency. Its value then depends on how the selling and buying activities of the said currency. Say for example, peso has a lower value than dollar. The value of peso depends on how much dollars have been exchanged into peso.
According to the research findings, the foreign exchange market is a decentralized interaction between buyers and sellers of currencies that determines the relative worth of currencies. It would be impossible to have foreign trade and investment without the existence of such markets that facilitate the conversion of one currency into another.
4 Pages(1000 words)Essay
GOT A TRICKY QUESTION? RECEIVE AN ANSWER FROM STUDENTS LIKE YOU!
Let us find you another Essay on topic FOREX (Foreign Exchange Market ) for FREE!