Foreign Exchange Market Essay example

B the permanent movement of funds from one currency to another in the hopes of profiting from long. term investment in a particular country.

FINAL PROJECT Peter Walkoviak IT 210 SEPTEMBER 10 2011 CASANDRA RICHARDSON FINAL PROJECT Application level requirements INPUT | PROCESS | OUTPUT | Main options | Display main | Main options | Main choose currency to be converted | Get users input | Display currency rate | Input total amount of currency to be converted | Calculate foreign currency into US dollars | Display total amount of currency in US dollars | Enter another currency amount or quit program | Return user to menu | Another conversion or quit program | Display results module Display module Foreign currency module Convert currency module Main module Currency Conversion Design Main Module Declare CurrencyType as string

26. A financial manager has detrermined that the appropriate rate discount for a foreign project is 17 percent. However, that discount rate applies in the United States using dollars. What discount rate should be used in the foreign country using the foreign currency? The inflation rate in the United States and in the foreign country is expected to be 3 percent and 8 percent, respectively.

Before we look at these forces, we should sketch out how exchange rate movements affect a nation 's trading relationships with other nations. A higher currency makes a country 's exports more expensive and imports cheaper in foreign markets; a lower currency makes a country 's exports cheaper and its imports more expensive in foreign markets. A higher exchange rate can be expected to lower the country 's balance of trade, while a lower exchange rate would increase it.

Currency exchange rates can be categorised as floating, in which case they constantly change based on a number of factors, or they can subsequently be fixed to another currency, where they still float, but they additionally move in conjunction with the currency to which they are pegged. Floating rates are a reflection of market movement, demonstrating the principles of both demand and supply, as well as limit imbalances in the international financial system. Fixed exchange rates are predominantly used by developing countries as they are preferred for their greater stability. They grant further control to central banks to set currency values, and are often used to evade market abuse. (MacEachern, A. 2008; Simmons, P.

determined by the flows of goods and the determinants of exchange rate in the long

An increase in the exchange rate of the U.S. dollar relative to a trading partner can result from

Businesses, institutions, and individual investors may not be risk tolerate and may seek to place their investments in other countries with a managed exchange rate with less volatility. By the definition of flexible exchange rate, there are little or no government controls or use of active government intervention.

Such a process can be very time consuming and imprecise, without, of course, having a market currency price to begin with. The exchange-rate system is an important topic in international economic policy. Policymakers and journalists often seem to treat the choice of exchange-rate system as one of the most important economic policy choices that a national government makes, on a par with free international trade. Under most circumstances and for most countries, a system of freely floating exchange rates is likely to be a better choice than attempting to peg the exchange rate.

                B)    the currency's value is set at a rate lower than its value in the free market.

You have just been transferred to Sydney and cover Australia and New Zealand on the sovereign research desk. Australia and New Zealand operate under a free trade agreement. No barriers to trade exist, and both currencies float. In this environment, an increase in expected inflation in New Zealand would most likely cause what effect?

The mainly methodology in this project are Augmented Dickey-Fuller (ADF) Unit Root Test, ordinary least square regression (OLS) and Vector autoregression (VAR) model, which utilize in this paper to examine the relationships between the exchange rate and various economic fundamental variables. About econometric software, where it is used is Stata.

An exchange rate tells you how much of one currency you can exchange for another. Generally, there are two types of exchange rate which is widely used by many countries: fixed and floating exchange rate. Nowadays, it is necessary to know what are their advantages as domestic currencies are essential to the method that economies run. But they are both not perfect. In 1973, with the collapse of the Bretton Woods system, countries that used fixed exchange rate were seriously affected and floating exchange rate rose afterward. However, there still had some debates on both fixed-rate and floating exchange rate. Especially after the Asian financial crisis in 1997, the debates became more intense. A fixed exchange rate once again favored by some countries. As we can see from the history, they have benefits and drawbacks. Each of them has their own characteristics. It is not possible to determine which exchange rate is better because the choice of the appropriate one may vary from different countries. In other words, the exchange rate regime changes along with the development of the international economic environment. That is why there are some different exchange rate regimes which lies between them in reality. Developing countries that have unstable economies and politics mostly use the fixed exchange rate to guarantee their residents a normal standard of living. On the other hand, developed countries such as the U.S, Great Britain are using floating exchange because

The second channel points to the influence of the real effective exchange rate on the economic growth rate and on the rate of job creation in the long run. Through the last channel, the real effective exchange rate affects employment by influencing the labor intensity of industries.

Explain how the international trade flows should initially adjust in response to the changes in inflation (holding exchange rates constant). Explain how the international capital flows should adjust in response to the changes in interest rates (holding exchange rates constant).