and would reduce profitability. b. Stability encourages investment. The uncertainty of exchange rate fluctuations can reduce the incentive for firms to invest in export capacity. Some Japanese firms have said that the UK’s reluctance to join the Euro and provide a stable exchange rates make the UK a less desirable place to invest. c. Keep inflation Low Governments who allow their exchange rate to devalue may cause inflationary pressures to occur. This is because AD increases, import prices
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Interest Rate Swap Rabobank’s Comparative Cost Advantage Fixed Floating Rabobank (AAA) 10.70 LIBOR + 0.25% B.F. Goodrich (BBB-) 12.5% LIBOR + 0.5% ---------------------------------------------------------------------- Rabobank’s 1.8% 0.25% advantage Comparative advantage = 1.8% - 0.25% = 1.55% p.a. Rabobank needs floating rate financing to support its U.S. dollar-denominated floating rate loans. B.F. Goodrich needs fixed rate financing
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(BWS) was implemented in 1946 under the Bretton Woods Agreement, each government obliged to maintain a fixed exchange rate for its currency vis-à-vis the dollar or gold. As one ounce of gold was set equal to $35, fixing a currency’s gold price was equivalent to setting its exchange rate relative to the dollar. The fixed exchange rates were maintained by official intervention in the foreign exchange markets. This intervention was about purchases and sales of dollars by foreign central banks against
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economy rely on finding solutions that allow both currencies to coexist in the market place. The first solution is to use a floating currency with no fixed dollar exchange rate (Bloch & Nelson, 2003). The second alternative is use a floating currency with a fixed dollar exchange rate. The benefits offered by this approach include: (a) El Salvador can set exchange rates in the open market, and (b) ability to float the domestic currency with respect to the dollar. Both alternatives will provide
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availability of money, and (iii) cost of money or rate of interest, in order to attain a set of objectives oriented towards the growth and stability of the economy. Monetary policy is referred to as either being an expansionary policy, or a contractionary policy. Expansionary Monetary Policy: Expansionary policy increases the total supply of money in the economy, and policy is traditionally used to combat unemployment in a recession by lowering interest rates. Contractionary Monetary Policy: Contractionary
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(Signature & full name) 2012 – 2013 CONTENTS CONTENTS i INTRODUCTION ii I. Exchange rates 1 I 1. Exchange rates 1 I 2. Exchange rate regimes 2 I 3. Roles of exchange rates 3 II. Compare and contrast between the value of VND and the others of ASEAN 5 II 1. The exchange rates in Vietnam from 2008 to 2010 6 II 2. The exchange rates in Vietnam in 2011 8 III. Impacts on exchange rates 10 III 1. Balance of Trade 10 III 2. Balance of Payments 11 III 3. Monetary Policy
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could utilize their power in creating money, which would affect exchange rate, output prices or revenue. Still a lot of countries have developed interest in maintaining different currencies even when they have limited ability to create money, particularly money at a national differentiated growth rate. For example during the era where money was rated equivalent to the price of precious metals or were pegged to gold, exchange rates were fixed. This involves, the gold standard of the 19th and 20th centuries
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may have lost a decade of economic progress. Beyond this, however, the crisis has raised a series of fundamental policy questions about the sustainability of the so called Asian Economic Model, the role of the IMF, and the virtues of floating and fixed exchange rates. The crisis also has important implications for international businesses. For a decade, the Asian Pacific region has been promoted by many as the future economic engine of the world economy. Businesses have invested billions of dollars
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features- fixed exchange rates(”par values” agreed with the international monetary fund and changed only in consultation with it); currencies that were freely converitble into each other or into gold; and freedom from exchange restrictions, at least on current payments. Controls on capital movements were permitted (Garritsen de Vrie, M. n.d) The Bretton Woods system had two governing bodies, the IMF which was there to give permission to countries to change there currency exchange rate and hand out
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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
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