Economic Effects of the Foreign Exchange Rate

3768 WordsJan 31, 200716 Pages
INTRODUCTION This paper tackles the effects of the foreign exchange rate as a whole and how it affects the country and at the same time how it gets affected. This paper enumerates the advantages and disadvantages of having a strong Peso. The paper also discusses what factors affect the strengthening and weakening of the Philippine Peso. This paper also includes an in depth analysis of how the foreign exchange could affect and gets affected by the economy, the society and politics. OVERVIEW The Philippine exchanged rate is express in terms of one unit of dollar versus one unit of peso. There are two cases on how an exchanged rate would be determined the first system is the free floating exchange rate where the supply and demand…show more content…
By May, the peso depreciated as it reached to an average of P52 per dollar; And by June, dropped to P53.59 per dollar. This was caused by the Higher risk aversion in the global markets and the possible increase of the Federal Reserve Bank's interest rate. Conversely, the peso appreciated by 1.66% reaching to a level of P52.31 per dollar on June and closed at P51.97 per dollar on July 25, after the president's State of the Nation Address. And by August, it reached to a P51.33 per dollar rate, increasing by 1.90% from its previous rate. Due to the increasing confidence by investors and improving economic conditions, the peso further increased its value and reached to an average rate of P50.37 per dollar in September and P49.91 in early October, the highest level since 2002. Volatility during the year 2006: Due to oil price roll backs and the approval of the RVAT law, the peso's volatility improved early in January 2006 averaging P0.19. It continued its trend in March to an average of P0.13. However, the peso's volatility increased to P0.30 in April and P0.59 in May which was caused by the depreciation of the value of the currency. In June, volatility decreased to P0.23. This was attributable to the increase of the country's GDP by 5.5% in the second quarter of 2006. But it rose again in July to an average of P0.43. This was
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