Examine the connections and differences between the official exchange rate market controlled by the Cadivi and the permuta. Discuss the states of equilibrium in each of these markets.

Venezuela is considered one of the countries with a rich supply of oil in Latin America. With this resource however, the country’s foreign exchange market has been dismal. Even though other oil producing/exporting countries are enjoying the high price of oil over the years, Venezuela has not been enjoying the inflow of foreign exchange in the country. Suffering from a short supply of “dollars”, the Venezuelan government has decided to establish a special agency to supervise foreign exchange control. This agency is known as the Commission of Foreign Exchange Administration (Cadivi, after the Spanish initials of Comision de Administracion de Divisas). Cadivi has the authority to issue general regulations on the requirements for purchasing foreign currency. If there are individuals or companies who desire to purchase foreign currency from the Central Bank of Venezuela, they first have to register with Cadivi at the Registry for Users of the Foreign Exchange Administration System (RUSAD) to get approval. All foreign exchange dealings with Cadivi have to be made through an authorized foreign exchange operator such as a bank. The Cadivi had strict regulations in place regarding the foreign exchange rate and who were qualified in accessing this amenity. The Permuta Market was developed in Venezuela to offer an alternative to individuals and companies who are not eligible or granted access to the controlled rates through the Cadivi system which was under the supervision of the Central Bank. The permuta was considered a parallel exchange market which traded bonds and stocks for dollars in stock exchanges and brokerages, where they operated in brokerage houses. The permuta market