...Question 1 When the Mexico’s currency is pegged to the United States dollar, it means that the exchange rate is set and artificially maintained by the government. The rate will not fluctuate from day to day. The pegged exchange rate is usually used to stabilize the value of a currency against the currency it is pegged to which makes trade and investments between the two currency areas easier and more predictable. Pegged exchange rate system can also be used as a means to control inflation. The difference between a free/clean float, a managed float and fixed exchange rate systems of exchange rate is that: Clean/free float In the clean/free float also known as a pure exchange rate the value of a currency, which is the exchange rate is determined purely by market forces of supply and demand. Clean floats can only exist where there is no government interference, as would be the case in a purely capitalistic economy. Therefore, clean floats are a result of Laissez-Faire or free market economies. Managed float In a managed float also known as “dirty float” the government or the country's central bank occasionally intervenes to change the direction of the value of the country's currency. In most instances, the intervention aspect of a dirty float system is meant to act as a buffer against an external economic shock before its effects become truly disruptive to the domestic economy. Therefore, with a managed or dirty float the government doesn’t peg the currency, but tries from time to time...
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...Managing Risk at Commercial Bank 1. Interest Rate Risk Interest Rate Risk (IRR) is the impact on interest income of the Bank due to possible changes in market interest rates as compared to current level. IRR constitutes the most significant component of market risk exposure of the Banking Book. Hence, the Bank monitors IRR on an ongoing basis giving due consideration to re-pricing characteristics of all assets and liabilities. Rate shocks of different magnitudes are applied to all assets and liabilities at regular intervals and the impact is monitored to ensure that the Bank’s earnings are within internally set parameters. Decisions to exceed such parameters taken at 2. Foreign Exchange Risk Foreign Exchange Risk is the possible impact on earnings and capital due to fluctuations in exchange rates. This may arise as a result of existing maturity mismatches of foreign currency positions. The Bank is exposed to foreign exchange risk, whenever it undertakes transactions in any currency other than Bank’s base currency, i.e. Sri Lankan Rupee (LKR). Risk tolerance limits for FX exposures set by the Bank, which are more stringent compared to the regulatory limits of Central Bank of Sri Lanka (CBSL) parameters, ensure that the Bank maintains the un-hedged FX positions at an acceptable level to prevent potential losses from adverse fluctuations in FX rates. The Bank is also exposed to FX Risk due to both FX...
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...International Monetary Fund International Monetary Fund (IMF) is an organization which monitors the currency and free trade, provides financial assistance, and maintains international financial operations. IMF is committed to promote world finance, strengthen financial stability, and enhance the sustainable development of free trade (Hill, 2013). Nowadays, the global financial is in a critical period, and IMF plays an important role for providing members with loans, monitoring and adjusting international cooperation on currency issues, and regulatory system (Rajan, 2008). IMF for economic governance and reform has been making a great progress and improvement since 2010 (Stijn, & Mayhan, 2013). IMF involved in supervision of each member of the financial management and the world economy function scope is quite large. This is because of the function definition is not clear, which resulting the unclearness in the division of labor with other international institutions. So as to some developed countries put pressure on developing countries, the media, as well as the incentives cannot be relatively reasonable standard based on the exercise of power. The functions of the broad and excessive monopoly will eventually bankrupt because of inefficiencies. Therefore, how the function of IMF is its detailed specification of global governance is an important start (IMF, 2013). Firstly, the method of IMF to solve problems is essentially based on the regulatory and assistance...
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...(iv) Your country is in a recession. You feel that a policy of exchange rate depreciation will stimulate aggregate demand and bring the country out of the recession. This essay examines the effectiveness of using exchange rate depreciation to stimulate aggregate demand in order to bring a fictional country, Australand, out of recession. It will explain how a policy of exchange rate depreciation can increase aggregate demand and how this will stimulate economic activity and bring Australand out of recession. The process of depreciating the currency will be explained as well as possible ramifications of this policy. Alternative options to increase aggregate demand will also be explored. A recession is technically when an economy has experienced two successive quarters of negative gross domestic product (GDP) growth. For this to happen the total amount of goods and services produced by a country must contract on a quarter by quarter basis for six months or more. (http://news.bbc.co.uk/2/hi/business/7495340.stm) It therefore stands to reason that by increasing the total amount of goods and services Australand produces, known as aggregate output, will bring Australand out of recession. Blanchard and Sheen (2009 p39) state that in the short run the main determinent of aggregate output is demand and that changes in demand can lead to an increase in output. Aggregate demand is the total quantity demanded for output at a given price level and it is therefore necessary to...
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...“Monetary Policy of Bangladesh” Course Code: Course Title: Macro Economics Submitted to: Submitted by: Date of submission: 15 August, 2012 Table of Contents |Titles |Page Number | |Table of Contents |02 | |Introduction |03 | |Definition of Monetary policy |03 | |Importance of Monetary Policy |03 | |Type of Monetary Policy |04 | |Tools to implement the monetary policy |04 | |Bodies of Monetary Policy |05 | |Monetary Policy in Bangladesh |05 | |Instruments of Monetary policy in BD ...
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...India and the Global Financial Crisis What Have We Learnt? 1 - Duvvuri Subbarao _________________________________________________________ Thank you for inviting me to deliver the 2011 K R Narayanan Oration. It is an honour to which I attach a lot of value. President Narayanan 2. Late President Narayanan was a distinguished diplomat, a reputed parliamentarian, a capable minister and above all an erudite scholar. Born at the very bottom of India’s social pyramid, he rose on to occupy the highest office in the country with no assets other than hard work, integrity and humility. ‘A working President’, as he described himself, he never allowed dogma to overwhelm his beliefs and convictions. 3. President Narayanan was in office from 1997 to 2002, a time when globalization, as we are experiencing it in the current times, was taking root. At the banquet he hosted for the visiting US President Bill Clinton in New Delhi in March 2000, President Narayanan remarked: “Mr. President, we do recognise and welcome the fact that the world has been moving inevitably towards a one-world... But, for us, globalization does not mean the end of history and geography, and of the lively and exciting diversities of the world.” This was a thoughtful remark. As much as globalization may be inevitable, history and geography need not be destiny. If we learn the lessons of experience, we will not repeat the same mistakes. This indeed is the topic for my 1 K.R. Narayanan Oration by Dr. Duvvuri...
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...The Euro is an individual currency that has theoretically been in operation in eleven countries that are members of the European Union. It was introduced in theory in January in the year 1999. The plans for arranging a single currency solidified on 1st January, 2002, when 12 EU member countries stopped using their own individual currencies and declared the Euro as their only currency. The EU has offered to let Britain hold a public vote on whether Britain should use the Euro as part of its economic involvement in the EU. Ever since the Euro has been introduced, it’s performance has been poor when it is compared with the values of the British Pound and the American Dollar. The Euro is a single currency arrangement that came into theoretical operation between 11 members of the European Union in January 1999. On January 1st 2002, 12 EU members got rid of their own currencies and introduced the Euro as their sole currency. If Britain joins the Euro, it will likely be in 2003. The government has offered the British public a referendum on Britain's entry into it though some ministers have clouded the issue as to whether Britain's entry (or not) will be a political or an economic decision. Jack Straw, Home Secretary, has stated that a decision will almost certainly be a political one whereas the Chancellor, Gordon Brown, has stated that the 'Five Tests' will determine whether we join the Euro - i.e., any decision will be an economic one. The Euro’s record since its introduction...
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...from the site of the 1944 conference that created the International Monetary Fund (IMF) and World Bank (International Bank for Reconstruction and Development), the Bretton Woods system was history's first example of a fully negotiated monetary order intended to govern currency relations among sovereign states. In principle, the regime was designed to combine binding legal obligations with multilateral decision-making conducted through an international organization, the IMF, endowed with limited supranational authority. In practice the initial scheme, as well as its subsequent development and ultimate demise, were directly dependent on the preferences and policies of its most powerful member, the United States. The World Bank and its sister organization, the International Monetary Fund, were created at Bretton Woods New Hampshire in 1944. Together they are referred to as the Bretton Woods Institutions or BWIs. The IMF's original mandate sets forth three main objectives: 1. To promote international monetary cooperation; 2. To facilitate the expansion of international trade; 3. To promote exchange rate stability. The IMF achieves these objectives by advising member countries on their economic policies and by providing conditional assistance to member countries experiencing balance of payments problems. As from the above, the Bretton Woods System designed 2 institutions. Gordon Wendell writes that the International Monetary Fund (IMF) is concerned with the world...
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...Introduction The projection of the state is provided by the concepts relevant to sovereignty and this is effectively established through a link relevant to both domestic and international realignments. Basing on various strands, nation-state, the composition that is reminiscent to the nation state is evolved within the spectrum of power and greatly advocated to help meet the significant compositions of the specific nation. The functions that help to define the law is based on exclusively new coordinations and the level of approach is objectively classified basing on the amount of political and social forces applied. For instance, the derivative involves The components which are supported by significant modern-state decisions are comparatively based on the growth potential of the modern-state. Political risk is a procedural occurrence that significantly affects to flow of modern-state process resulting into significant development processes. Brown, (2008) explained the political decisions that are deliberately made would lead to uncoordinated migration from a projected state to a more politically motivated system that is capable of being obstructed by political forces. The focus on important causative agents exemplifies the sharpened political forces as well as heightened security concerns. The established goals are distinctly created through the effectiveness of the risks related to economic turnovers and generated landscapes. Lind, (1995) critically reasoned that a nationalistic...
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...speed economic overhauls to revive flagging growth, worried about an overreliance on easy-money policies that could spell trouble for the global economy. A series of global market routs and rising recession risks have raised the stakes for the Group of 20 leading economies as they try to craft a coordinated strategy to boost the world’s economic output and calm investor jitters. The problem is figuring out how to revive demand in a world where central banks are running out of gas and most of the world’s biggest growth engines are downshifting, idling or struggling to get out of first gear. The solution, many G-20 officials have indicated in recent days, is a stronger effort to restructure stagnating economies and increase investment in infrastructure. “We have to commit to using all policy levers,” said U.S. Treasury Secretary Jacob Lew in an interview. “The burden shouldn’t be on any one of the policy levers, either excessively or certainly not exclusively.” Worried about a dimming outlook, the International Monetary Fund on Wednesdaycalled on the G-20 to engineer “coordinated demand support, using available fiscal space to boost public investment and complement structural reform.” The temptation, however, will be to keep relying on monetary policy or even currency depreciation to spur exports. Central banks around the world, notably in Europe and Japan, have expanded policies that are cheapening their exchange rates. China, meanwhile, is struggling to manage a slowdown...
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...sovereign debt management and monetary policy under fiscal dominance and financial instability Hans J Blommestein and Philip Turner1 Abstract Serious fiscal vulnerabilities arising from many years of high government/GDP ratios have created new and complex interactions between public debt management and monetary policy. Although their formal mandates have not changed, recent balance sheet policies of many central banks have tended to blur the separation of their policies from fiscal policy. The mandates of debt management offices have usually had a microeconomic focus (viz, minimising longer-term borrowing costs, while limiting refunding risks). Such mandates have usually avoided any explicit macroeconomic policy dimension but some major policy overlaps are latent. What is needed is a policy framework for all official actions that affect the maturity structure of government debt in the hands of the public. This requires more analysis of the macroeconomics of government debt management. A full debate about the allocation of functional responsibilities would have to take account not only of the economics, but also of political and institutional constraints. There are operational advantages in having in place appropriate governance arrangements that serve to forestall short-sighted policies and hold specific institutions accountable for their mandates. Keywords: Monetary policy, central banks, policy design and consistency, policy coordination, debt management, sovereign debt JEL...
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...Gold Standard By phil42 | Studymode.com With the Gold Standard, the US economy would print currency that equaled a specific value of gold. Meaning, you could cash in your money for a specified amount of gold because a unit of currency = a specific amount of gold. The limitations to Governments was that they could not spend what they wanted because the amount of currency in circulation had to correspond to the amount of gold in reserve. Nixon, eliminated the Gold Standard, I think during the Vietnam war. As a result, the currency in circulation today does not have to be backed up by anything, not gold, not anything. That's why we see trillion dollar deficits today. Politicians can spend what they want regardless of the real economic downfalls that eventually have to be dealt with. Nowadays, on a side note, our US debt is fianced by foreign governments such as the Chinese and others. This means most of debt the US government owns is owed to foreign investers. The answer to whether having Gold Standard is good or not is based on who you ask. Economists will have one answer, politicians will have another. The phrase “gold standard” is defined as the use of gold as the standard value for the money of a country. If a country will redeem any of its money in gold it is said to be using the gold standard. The U.S. and many other Western countries adhered to the gold standard during the early 1900’s. Today, however, gold’s role in the worldwide monetary system is negligible....
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...Tw elfth Edition INTERNATIONAL BUSINESS Environments and Operations John D. Daniels University of Miami Lee H. Radebaugh Brigham Young University Daniel P. Sullivan University of Delaware Pearson Education International Contents Preface 29 About the Authors • PART ONE 39 BACKGROUND FOR INTERNATIONAL BUSINESS 44 1 Globalization and International Business 45 49 44 CASE: The Global Playground Introduction 48 W h a t Is International Business7. The Forces Driving Globalization 50 Factors in Increased Globalization 51 What's Wrong with Globalization? 56 Threats to National Sovereignty 56 Economic Growth and Environmental Stress 57 Growing Income Inequality 57 s | Point ^J3ffi^S^^3 ' Offshoring Good Strategy? 58 Why Companies Engage in InternationaLBusiness Expanding Sales 60 , Acquiring Resources 60 Minimizing Risk 60 60 Modes of Operations in International Business Merchandise Exports and Imports 62 Service Exports and Imports 62 Investments 63 Types of International Organizations 63 Why International Business Differs from Domestic Business 64 Physical and Social Factors 65 The Competitive Environment 67 Looking to the Future: 61 Three Ways of Looking at Globalization 68 C A S E : Carnival Cruise Lines: Exploiting a Sea of Global Opportunity 69 74 Summary Key Terms 75 Endnotes 75 An Atlas 78 Map Index 86 Contents • 2 PART TWO COMPARATIVE ENVIRONMENTAL FRAMEWORKS 90 91 90 The Cultural Environments...
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...1 The committee of the region – local authorities 2..Economic and social committee Regulations have to be applied in the 28 member states. The enterprise Europe network * Networking based * More than 50 countries, 650 organizations, 4000 experts * Provides information and advice to local business on EU policies * Gives feedback to the EU institutions * Finds commercial and technological partners throughout the European Union * Provides support in innovation and internationalization Examples of questions: * What are the expected changes of the rules for my products in the next months? * How can I get my VAT back in another country? * What is the EU law for waste management? * How can I manage to enter the Polish Market? * … Monitoring the EU policies: why? * 80% of economic and social relevant policies come from the EU and are coordinated between member states. * 17 of them are sharing the same currency * EU decision making is important at all levels, from the EU to the regions and cities (more than 366 bns of euros will be invested in the Eu economy uo to 2020) * 70% of the EU policies have a direct impact on the regional development * 80% of our regional exportations go to the EU * 96% of our regional exportations enterprises do it in the EU Community rules are fully applicable in the member states to all legal entities Primacy: incase of conflict, the community rule shall prevail Direct effect:...
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...and financial agreements. * Exercise all powers and rights as conferred on it in the Central Bank Law. Functions of State Bank of Pak 1. Regulation of liquidity Being the Central Bank of the country, State Bank of Pakistan has been entrusted with the responsibility to formulate and conduct monetary and credit policy in a manner consistent with the Government’s targets for growth and inflation 2. Regulation and Supervision | | One of the fundamental responsibilities of the State Bank is regulation and supervision of the financial system to ensure its soundness and stability as well as to protect the interests of depositors. | 3. Exchange rate management and Balance of payment One of the major responsibilities of the State Bank is the maintenance of external value of the currency. In this regard, the Bank is required, among other measures taken by it, to regulate foreign exchange reserves of the country in line with the stipulations of the Foreign Exchange Act 1947. 4. Development role of State Bank The responsibility of a Central Bank in a developing country goes well beyond the regulatory duties of managing the monetary policy in order to achieve the macro-economic...
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