Managing Global Economy - Essay Example

Non-economic rationales for government interventions on trade commonly identified as providing a suitable foundation for regulation are the promotion of fairness and the fostering of community ideals (Cheffins 1997, p. 126). The legal regulation of market transactions can be justified on a number of grounds. One basis upon which this can be done is that outcomes which are unfair require a response from the government. On the protection of community ideals, state intervention can perhaps correct the corrosive impact market forces allegedly have on society.

Correspondingly, support exists for the proposition that lawmakers should take action when markets threaten to undermine key community ideals. Nontariff barriers include quotas, voluntary export restraints, voluntary price restraints, import licensing, customs procedures, exchange controls, domestic content requirements, "buy national" policies, discriminatory trading agreements. These barriers involve direct import control measures. Nontariff barriers affecting exports indirectly include standards, distributor practices, and financial controls (Hilke & Nelson 1988, p. 8). The static effects of economic integration have their most obvious and profound influence in the period immediately following the creation of, for example, a customs union.

Gradually, after several years of adjustment, the dynamic effects will increase in importance and become dominant. These effects push further technological constraints and provide the group with an additional integration-induced 'growth bonus' (Jovanovic 1998, p. 40).6. What are foreign exchange markets and the exchange rate Vanek (1962) defines foreign exchange market as all places where foreign exchange is traded. There are two useful sets of classification of the foreign exchange market. In the first place, there is not one but a large number of foreign currencies.

Second, the total supply and demand of foreign currency is derived from different types of transactions, which provides a convenient classification for the study of the market for exchange (p.56).7. Discuss how companies use foreign exchange. A foreign exchange is being used by companies for purchase/sale of foreign currency that operates outside the legal financial system of a country. It is an illegal source (or use) of foreign currency that buyers and sellers choose to utilize for various reasons -- from tax evasion to operation of a contraband business to escape from onerous and sometimes conflictive government regulations (Grosse 1994, p. 1).8.

List and define the categories of exchange rate regimes.9. Discuss purchasing power parity (PPP) and the short-run problems that affect PPP. The first equilibrium theory, time-honoured, is purchasing power