Fixed Economy vs Floating Economy

Chapter 11: Global negotiations leave groups more fortunate. A government that is purposefully maintaining inflated currency is robbing buyers of imports and creators of exports. A deflated value has an opposing effect, making imports cheaper and exports less challenging. One piece of currency across the west reduces negotiations and encourages price transparency. However, the United States as an individual country are

With the onset of the war, the stability of the relationship between Britain, France, and Germany – which the Gold Standard was dependent on – crippled (lecture, 10/13). During the interwar period, 1914-1945, the lack of coordination between economies led to a liquidity shortage while the nations held a floating exchange rate. The interwar period saw a breakdown in international monetary coordination – proving that a floating economy was doomed for failure (FLB 264). Outside of the lack of international coordination, the Gold Standard had other downfalls leading to its demise. For example, national governments had no authority to stimulate their country’s economies in times of need. Moreover, the fixed economy limits foreign trade, hurting the country’s industries (lecture,

The expansion of new markets – foreign exchange and capital markets are linked globally. They operate 24 hours a day with dealings any where in the world possible in real time. Financial deregulation and the floating of the Australian dollar since 1983 intensified the impact of globalisation on the Australian economy.

After World War II, the Bretton Woods Agreement established the gold standard and two support institutions called the International Monetary Fund (IMF) and the World Bank. This would lead to a shift, away from the gold standard, to more relaxed systems. The idea of currency purely backed by gold was slowly being shifted to a trust based currency. These institutions purpose was to regulate the economies by injecting or taking money in a process called sterilization. Sterilization is to protect certain countries from a going bankrupt. If a country goes bankrupt, it chain a chain reaction of bankruptcies. So, in order to maintain balance, currencies need to be stable enough, so that it can be in debt without having to declare bankruptcy. The idea is

and Japanese yen has been seen as a ‘safe haven’ currency – because Japan as a

•     The expansion of new markets – foreign exchange and capital markets are linked globally. They operate 24 hours a day with dealings any where in the world possible in real time. Financial deregulation and the floating of the Australian dollar since 1983 intensified the impact of globalisation on the

Is it better to fix or float interest rates in the current economic environment? This is the question now facing Marcus Garvey who is planning to buy his first home in October of this year. Making the right decision on whether to fix or float interest rates on a mortgage and for what period could be the difference of thousands paid to the bank in additional interest. To assist Marcus in this decision, this essay has looked at many variables. Firstly, and most importantly, what interest rates are expected to do in the short term future? Secondly, what are the advantages and disadvantages of both fixed and floating loans and how these will affect Marcus based on the information we know about him. We also look at the unknowns’ of Marcus’s situation that may lead to an alteration in recommendation. Thirdly we will look at how long of a fixed period would be recommended to have the most economic benefit for Marcus if he decides to go with this option. Based on the information given on Marcus, and what we have learnt about the current environment, it is decided to recommend that Marcus either fix his whole mortgage, or fix the majority while leaving a small portion floating. There are many variables that must be considered when deciding to fix or float and not knowing Marcus’ situation in relation to these variables, this would be the safest option.

The value of a country 's currency also plays a role in how other markets will do within that country. If a country 's currency is weak, this will deter investment into that country, as potential profits will be eroded by the weak currency. (Unique features of the forex market may allow larger players to get a jump on smaller ones; The Participant Effect

The main exchange rates exposures are: British pounds, Deutsch Mark, Japanese Yen and Belgian Francs.

     In the present day, the world's economy is ever-changing and adjusting. Many different reasons control the reasons for this. The future of currency is something that can only be predicted and is not guaranteed. However, there are many determing factors behind the changes that can take place. Asia and North America are two continents that have economies that have recently changed or are in the midst of change.

dollar. In dollarization, the country abolishes its own currency and uses a foreign currency, such as the U.S. dollar, for all domestic transactions. 6. Emerging market exchange rate regimes. High capital mobility is forcing emerging market nations to choose between free-floating regimes and currency board or dollarization regimes. What are the main outcomes of each of these regimes from the perspective of emerging market nations? There is no doubt that for many emerging markets a currency board, dollarization, and freely-floating exchange rate regimes are all extremes. In fact, many experts feel that the global financial marketplace will drive more and more emerging market nations towards one of these extremes. As illustrated by Exhibit 2.5, there is a distinct lack of “middle ground” left between rigidly fixed and freely floating. In anecdotal support of this argument, a poll of the general population in Mexico in 1999 indicated that 9 out of 10 people would prefer dollarization over a floating-rate peso. Clearly, there are many in the emerging markets of the world who have little faith in their leadership and institutions to implement an effective exchange rate policy.

The use of money has become most prevalent in terms of purchasing goods and services instead of the old way of bartering. Most nations have different types and rates of money, so countries have to figure out the proper exchange rate that reflects a consistent balance when dealing with the rest of the world. An important observation made by Weaver is that there needs to be a balance of trade. More specifically, there needs to be a balance between a nation’s exports

A fixed exchange rate regime will offer an economy greater stability in international prices and therefore encourage trade. Additionally, for developing countries a fixed rate will assist in promoting institutional discipline as the country will adopt restrictive monetary and fiscal policies that foster an anti-inflationary environment. A significant weakness of a fixed rate is that it is subject to destabilizing speculative attacks which could lead to financial meltdowns and devastating economic contractions. A floating exchange rate regime allows central banks to combat macroeconomic factors such as unemployment, inflation, and interest rates without having to worry about the effect on exchange rates. However, developing countries whose economies depend on trade will be reluctant to allow their exchange rates to fluctuate freely.

Floating exchange rates can be found for example in the arrangement of the U.S. with their

Argentine pesos…………………………………….. International Fisher Effect…………………………. Covered Interest Arbitrage (CIA) - Denmark I…… CIA Denmark B – Part (a) & Part (b)……………… CIA– Japan………………………………………….. Uncovered Interest Arbitrage – Japan……………. International Parity Conditions in Equilibrium……. Mary Smyth – CIA…………………………………… Mary Smyth – UIA…………………………………… Mary Smyth -- one month later…………………….. Langkawi Island Resort…………………………….. Covered Interest against the Norwegian krone…... Frankfurt and New York…………………………….. Chamonix chateau rentals…………………………. East Asiatic Company – Thailand…………………. Maltese Falcon: 2003-2004………………………… London Money Fund………………………………… The African Beer standard of PPP………………….