...Bretton Woods System and world trade in post-war period Introduction This reading report is based on two technical papers( The Bretton Woods international monetary system: An historical overview by Michael D. Bordo 148 pages & The post-war rise of world trade: Does the Bretton Woods System deserve credit? By Andrew G. Terborgh 74 pages)on Bretton Wood System as well as the post war international trade system since the U.S has become the most powerful economy after World War II, that US dollar was at that time the dominant currency internationally speaking. The first paper is titled of “The Bretton Woods International Monetary System: An historical overview” by professor Michael D. Bordo who is an economic professor and Director of the center for Monetary and Financial History at Rutger University. His paper has a brief overview of Bretton Woods experience. From its emergence and how it evolved that influence the monetary convertibility and gold dollar standard, until its collapse due to the U.S depression in 1970s. I considered this article to be a very technical one that gives many details on Bretton Wood System in history, but the very interesting part could also be that the author has given the ideas that why Bretton Woods was very stable but lived so short. Meanwhile, the second paper I chose to read is “The Post-War Rise of World Trade: Does the Bretton Wood System Deserve Credit?” . This one is more of an analyzing paper written by Andrew G. Terborgh, economic professor...
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... 3 Fixed Exchange rate and Disinflation in emerging markets 6 Exchange Rate proclamation and Inflation fighting credibility 9 Exchange rates, inflation and growth in small, open economies: A difference-in-differences approach 12 Monetary policy rules under a fixed exchange rate regime: Empirical Evidence from China 15 Fixed exchange rates and trade 17 Conclusion 19 Bibliography 22 Introduction This research paper looks to explore the relationship behind the infamous fixed exchange rate and the level of inflation. I also take a look at how there is a trade off between the exchange rate regime and trade activity shapes up. Fixed exchange rates are a monetary regime used by around 50% of the world’s economies. The advent of fixed exchange rates is not common in the developed world. One exception to this is the EU which maintains a very stringently monitored monetary policy. Fixed exchange rates are a popular policy tool in the emerging economies, where...
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...various exchange rate systems. DEFINITION OF EXCHANGE RATE Exchange rate is defined as the rate at which one currency may be converted into another. The exchange rate is used when simply converting one currency to another (such as for the purposes of travel to another country), or for engaging in speculation or trading in the foreign exchange market. There are a wide variety of factors which influence the exchange rate, such as interest rates,inflation, and the state of politics and the economy in each country, also called rate of exchange or foreign exchange rate or currency exchange rate. (1). FLOATING EXCHANGE RATE SYSTEM In a floating exchange rate system, governments and central banks do not participate in the market for foreign exchange. The relationship between governments and central banks on the one hand and currency markets on the other is much the same as the typical relationship between these institutions and stock markets. Governments may regulate stock markets to prevent fraud, but stock values themselves are left to float in the market. The U.S. government, for example, does not intervene in the stock market to influence stock prices. The concept of a completely free-floating exchange rate system is a theoretical one. In practice, all governments or central banks intervene in currency markets in an effort to influence exchange rates. Some countries, such as the United States, intervene to only a small degree, so that the notion of a free-floating exchange rate...
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...Foreign Currency & the Economy. The paper develops the correlation between foreign currency & the economy. It further goes on to discuss the various parameters that affect this correlation. Finally, a few hypotheses drawn from the discussion are presented at the end of the paper. Introduction: Foreign Exchange & foreign currency is the elastic link between various independent political states. The Central Bank of a country frames the monetary policy to maintain a desirable Foreign exchange rate & regulate the flow of foreign currency in an economy. Now let us understand the correlation & interplay between foreign currency & the various economic parameters. In a floating regime of exchange rates, the interest rates in the country are adjusted so as to vary its real exchange rates & also as a measure to control inflation. Therefore a developing capitalist country will have its Central Bank adopt the policy of keeping its interest rate as low as possible. This will enable the entrepreneurs & the various economic actors to obtain capital at a cheaper rate. It will also help to maintain a low real exchange rate & hence boost domestic exports. Growing exports will see a positive trade balance or a Current Account Surplus. With a current account surplus the country can make strategic investments in the foreign markets or acquire factories. This will result in a negative Capital Account while indicating the presence in foreign markets. Such a cycle when sustained can provide a drive to...
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...International Trade Simulation and Report Taruh Cravens, Melody Jones, Geneva George-Williams, Ruby Morgan, Nicole Southerland ECO/212 Blake Bennett International Trade Simulation and Report This paper is a team correlation on the knowledge gained from our course of study and how the concepts are applied, how international trade affects the U.S, economy, and addresses the four key factors from our weekly reading assignments that are shown in the stimulation. The simulation identified Rodamia’s bordering countries provide an opportunity for international trade and investments that could greatly benefit Rodamia. International trade with other countries would give consumers more choices in price and quality of goods. The domestic producers would increase production to meet market demands in other countries, producing more capital for investing in new avenues. The interaction of trade between the countries will make the countries more vibrant and wealthier. Limitations of international trade are placed in the form of tariffs, quotas, and regulations. These limitations offer protection in certain circumstances but can have negative if used to retaliate for reasons such as political differences (Colander, 2004). The simulation emphasized four key points from the team’s weekly reading assignments, including comparative advantage, the principle of increasing marginal opportunity, the protection possibility curve, and limitations on international trade. The...
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...RELATIONS MASTER’S DEGREE in Studi Politici e Internazionali ‘International Economic and Trade Relations’ LM–62 MASTER THESIS in DEVELPOMENT ECONOMICS Foreign Exchange regimes and major currencies Supervisor Student Prof. Paolo Sospiro Parapatakam Praveen Reddy MAT: 62282 ACADEMIC YEAR 2013/2014 Contents Introduction 5 Chapter 1 7 1. History of exchange rate regimes: 7 1.1 Gold Standard System (1880-1914): 7 1.2 Interim instability (1914-1944): 7 1.3 Bretton woods system (1946-1971). 8 Figure1.World Trade (1929-33).............................................................................................9 1.4 Par Value system: 9 2. Classification of Exchange Rate Regimes: 10 2.1 De facto Classification (1998-2009) 11 Diagram1. De Facto Classification of Foreign Exchange Regimes (Nov 1998 – Jan 2009).......12 2.2 Revised De Facto Classification System (2009 January to Present): 15 Table1. Shares of Classifications Using the 1998 and 2009 Systems. 16 2.3 Revised Classification System Definitions: 17 Hard pegs: 17 Soft pegs: 18 Floating arrangements: 19 Residual: 20 2.4 De facto Classification of Exchange Rate Arrangements and Monetary Policy Frameworks-2014 20 Table2. Monetary Policy Frame work .......
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...undervaluation or overvaluation of the RMB against the USD and against other world currencies. There are economists that argue that the RMB is overvalued against some world currencies beside the Euro and the USD (Yuan is Overvalued, not Undervalued: report, 2010). Other economists argue that the RMB is undervalued against the USD, and this would be the major focus of this research paper. The RMB’s depreciation allows China to unfairly gain trade advantages over other trading nations. Economists views varies on the level at which the RMB’s undervaluation affect other Chinese trading partners. But most economists agree that currency flexibility would be of great help to decrease global imbalances (China Currency Overview, 2010). This research paper will discuss the different component of the Chinese protectionism policy for its exchange rate, and its effects on other nations such as the USA. The focus will be in showing the advantages and disadvantage for the USA and China in the trading balance. Historical background of the RMB: Preceding year 1994, China had a dual exchange rate system. The dual exchange rate system was practiced in two different ways, which are the official fixed exchange rate system and the moderately market-based exchange rate systems (China Currency Overview, 2010). The government used the fixed exchange rate system, but the exporters and the importers used the market-based exchange rate (China...
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...DETERMINANTS OF TRADE BALANCE OF BANGLADESH by Mohammad Habib Hossain A project submitted in partial fulfillment of the requirements for the degree of Professional Master in Banking and Finance Examination Committee: Dr. Donyaprueth Krairit (Chairperson) Dr. Sundar Venkatesh Dr. W.A. Wijewardena Nationality: Previous Degree: Bangladeshi Bachelor of Business Administration Khulna University Khulna, Bangladesh Scholarship Donor: Bangladesh Bank Asian Institute of Technology School of Management Thailand February 2015 Acknowledgement I would like to express my gratitude to my advisor Dr. Sundar Venkatesh, who supported and guided me throughout my research with much patience and empathy. I am thankful to the Asian Institute of Technology for arranging a professional master’s program for the working executives. I am much obliged to Bangladesh Bank (Central Bank of Bangladesh) for granting me the scholarship for the entire period of my study. I am also thankful to my colleagues and classmates at PMBF, AIT, especially to Mr. Obaydullah Al Masud and Mr. Golam Rabby Masud, for their support, interest and valuable comments. ii ABSTRACT The balance of trade or net exports is rather an interesting issue because of its perplexing relationship and impacts on economies. Bangladesh is a rapidly growing market-based economy in the South Asian region. It has a long history of sustaining a negative trade balance, importing more goods...
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...Foreign Exchange Markets Introduction Forex i.e. Foreign Exchange is the biggest financial market in the world. It is a source of income to many traders and banks of the world. It is not tied to any stock exchanges in the world. In fact, it is over-the-counter (OTC) market. It helps international trade and investment. It is the mechanism by which the currencies are related to each other. The values of different currencies are determined in the foreign exchange market. An individual or an institution, anybody can trade in currencies. The trade takes place in pairs i.e. one currency is purchased and other is sold in a simultaneous transaction. The rate at which the trade takes place, i.e. exchange rate is determined on the basis of interaction of market forces dealing with supply and demand. Features of Foreign Exchange Market As far as we have understood the concept of Foreign Exchange Market, we can point out some features of the foreign exchange market as under: 1. Medium of profit to an individual or an institution 2. The market does not rely on any one particular economy 3. High trading volumes 4. Most liquid market in the world 5. Long trading hours of 24 hours a day except on weekends 6. Different exchange rates for different currencies 7. It rarely involves the exchange of bank notes Operation of Foreign Exchange Market There are a thousands of securities traded on a stock market. But in the foreign exchange market, there are only...
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...country experiences a positive balance in exports over imports it creates a trade surplus when means it has more cash flowing inward that outward. The trade surplus is comprised of the cash a country receives for the goods and services it exports and funds foreigners spend during their visits (Wisegeek, 2013). When a nation can sustain a positive effect on its trade surplus is an indication that it has a strong control its currency. International trade is the exchange of goods, services, and capital between countries. The United States has become a major competitor in the international trade market to countries such as Japan, and China. These countries along with the United States produce some of the same products for consumer consumption such as computers. Dell computers are made and exported by the U.S. and its chief competition is Toshiba which is built in and is an export of Japan. Depending on what the current exchange and interest rate is in the United States a surplus could be created. According to Froning (2000), "International trade is the framework upon which American prosperity rests” (The Benefits of Free Trade: A Guide For Policymakers). Today’s open market creates a level of competitiveness that spawns a persistent array of innovative thought that can effect new markets, product improvements, higher quality of exceptional paying jobs, and an increase in investments and savings. Free trade has a positive effect on the American consumers by exposing them to more goods...
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...Volatility of exchange rate The main objective of this research is to present a rationalized concept of the theory and composition of exchange rate that are compulsory to solve the important economic problems facing the economy in the country, like volatile exchange rate, unbalanced financial circumstances and frustration of government to have control over domestic money market. “Exchange rate” shows that how much unit of onenation’s currency can be purchased with one unit of domestic currency. More precisely, exchange rate is a conversion factor that determines rate of change of currencies. While exchange rates volatility shows that exchange rate is settled on demand and supply of one nation’s currency, it may turn out fastest moving price of currency and bring all the foreign capital in the economy. Exchange rate volatility can influence the decisions of policy makers and affect the volume of exports and imports. It can also affect the allocation of manufacturing of goods, reserve money, exports, imports and balance of payments. Exchange rate volatility provides chances to domestic investors to invest in foreign currency to obtain higher profits and thus domestic currency undervalue and foreign currency gain values. Moreover, this volatility of exchange rate directly influences the prices of exports, imports, reserve money, manufacturing productions and their growth rates. Traders and investors always support the system where the discrepancy of the difference between actual...
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...Foreign Exchange Market Demond McKeever National University In view of the fact that the international business environment is not set up with a worldwide medium for exchange, the foreign exchange market is a necessity for international trade. The major functions of the foreign exchange market are to transfer purchasing power, allocate open trade for international markets, monitor exchange rates from fluctuating to rigorously, and to aid in the import and export of goods between countries by providing credit for financing international trade (Suranovic, 2005) The foreign exchange market or forex market as it is often called is the market in which currencies are traded. Currency Trading is the world’s largest market consisting of almost trillion in daily volume and as investors learn more and become more interested, the market continues to rapidly grow. Not only is the forex market the largest market in the world, but it is also the most liquid, differentiating it from the other markets. In addition, there is no central marketplace for the exchange of currency, but instead the trading is conducted over-the-counter. Unlike the stock market, this decentralization of the market allows traders to choose from a number of different dealers to make trades with and allows for comparison of prices. Typically, the larger a dealer is the better access they have to pricing at the largest banks in the world, and are able to...
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...Why has world trade grown faster than world output? By Mark Dean of the Bank’s International Economic Analysis Division and Maria Sebastia-Barriel of the Bank’s Structural Economic Analysis Division. Between 1980 and 2002, world trade has more than tripled while world output has ‘only’ doubled. The rise in trade relative to output is common across countries and regions, although the relative growth in trade and output varies greatly. This article attempts to explain why the ratio of world trade to output has increased over recent decades. It provides a brief review of the key determinants of trade growth and identifies proxies that will enable us to quantify the relative importance of the different channels. We estimate this across a panel of ten developed countries. This will allow us to understand better the path of world trade and thus the demand for UK exports. Furthermore this approach will help us to distinguish between long-run trends in trade growth and cyclical movements around it. Introduction In the past few decades there has been an increasing integration of the world economy through the increase of international trade. The volume of world trade(1) has increased significantly relative to world output between 1980 and 2002 (see Chart 1). Some of this increase can be accounted for by the fact that traded goods have become cheaper over time relative to those goods that are not traded. However, even in nominal terms the trade to GDP ratio has increased over this...
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...Introduction In an open economy, there are no impediments to trade. Goods and services flow freely between business and citizens in one country to their counter parts in another. This section discusses exchange rates, exchange rate adjustments and systems, macroeconomic policy in an open economy, as well as international banking, including international currency reserves, debt, and risk. Learning Materials Open Economy Macroeconomics: Exchange Rates, Balance of Payments and Policy Exchange-Rate Systems With some notable exceptions, most countries in the world have their own currency. Consequently, foreign exchange markets have developed to allow individuals, businesses, governments and other institutions to be able to make payment and receive payment across borders. Each country decides on an exchange rate system, whether they will set their exchange value of their currency administratively, allow markets to determine it, or some combination of those two approaches. Both macroeconomic and microeconomic forces influence the price of each currency in terms of another currency, its exchange rate. Exchange-rate systems include fixed, freely floating, managed floating, fixed peg, crawling-peg currency board, and dollarization. The United States, European Union, United Kingdom and Japan follow managed floating systems. Currency Boards and Monetary Policy Developing countries and small countries with large international sectors are more likely to use fixed systems, peg...
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...The Foreign Exchange Market of South Korea Brief Introduction of currency Won The currency used in South Korea is the Won, (sign: ₩; code: KRW), it can be further divided in 100 jeons, the subunit. Won has been existed for thousands of years in South Korean History. After the world war two, the Korea continent was divided into North Korea and South Korea. Both of the two countries have been using won as their currencies. The foreign exchange policy of won followed a pegging method to dollars before 1980. From 1980 to 1997 South Korea had initiated a series of actions towards floating exchange rate. During the East Asian financial crisis, the won was devalued at almost half of its original value. The monetary system The monetary system is basically consisting of four major government entities; “the Ministry of Finance and Economy (MOFE), the Bank of Korea (BOK), the Financial Supervisory Service (FSS), and the Korea Customs Service (KSS)” (Korea, South-Money). The bank of Korea, according to Savada and Shaw in their country paper on South Korea, is established as the central bank of South Korea and supervised all the financial transactions of diversified financial institutions. Its major functions also includes the issuance of currency, the determination on the monetary and credit policies, the collection and record of the statistics of overall economy, and the regulation of all private banks. It also closely partners with the central government for raising funds for public...
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