The Effect Of Macroeconomic Indicators On Economic Growth On A Petrol Dollar Economy Essay

Monetary Policy is the procedure by which the financial expert of a nation, similar to the national bank or cash board, controls the supply of money. Regularly focusing on a inflation rate or interest rate to guarantee value solidness and general trust in

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.

The most commonly-used metrics to evaluate the growth of the economy are: GDP, inflation, unemployment, and interest

At the end of World War Two, the Bretton Woods system was established for world currencies. This system involved countries fixing their currencies to the US Dollar, which in turn was tied to the value of gold at a fixed exchange rate of $35 per ounce. As this was a fixed exchange rate system it effectively forced countries to pursue a certain monetary policy, in order to keep their currency pegged to the Dollar and in turn the value of gold.

In the dynamic global market, companies of all sizes, whether small, medium or transnationals interact with foreign companies and in most cases operate with currencies that are different from those that they commonly use. Foreign companies use foreign currencies for their expenditures, hedging strategies, and investing and financing activities. As a result these business activities must be reflected on the financial statements in the corporation’s reporting currency. FASB 52 and IAS 21 provide the appropriate guidance on the consideration of which functional currency should be implemented by the foreign subsidiaries. This case focuses in Sparkle a Nigerian subsidiary of a

"Monetary policy is a policy of influencing the economy through changes in the banking system's reserves that influence the money supply and credit availability in the economy" (Colander, 2004, p. 659). Monetary policy also refers to the actions undertaken by a central bank,

This study is designed to examine the causes of exchange rate fluctuations and their impact on the Nigerian economy since there is scarcely any country that lives in absolute autarky in this globalised world. The economies of all the countries of the world are linked directly or indirectly through asset or/and goods markets. This linkage is made possible through trade and facilitated by foreign exchange. The price of foreign currencies in terms of a local currency (i.e. foreign exchange) is therefore important to the understanding of the growth trajectory of all countries of the world.

Initially the country’s bank currency had been viewed as inflexible since it was anchored on the depreciating worth of the

Discuss how rising oil prices might affect the macroeconomic performance of an economy. (25 marks)

Monetary policy is the mechanism of a country’s monetary authority (usually the central bank) taking up measures to regulate the supply of money and the rates of interest. It involves controlling money in the economy to promote economic

An increase in spending leads to an appreciation of the real exchange rate, as the government is using external resources to drive up demand for local goods and services. In the event of a resource windfall, there would often be a currency crisis which would ultimately lead to a shrinking of money and credit, which could precipitate a recession (Frankel, 2010). There is a direct relationship between resource windfall, economic growth and a country’s exchange rate. In Nigeria for example, there is an overdependence of the economy on oil revenue. The local currency is pegged to the US dollar and as such, increases in oil prices have a direct impact on inflation rates. This predisposes the economy to a mismatch between the volatile revenues and the relative stable spending commitments, which in turn, means instability of government revenue. This has resulted in the movement of labour and capital from the agriculture industry into oil and gas.

In the 11 years, the international economic situation has undergone great changes; pegging the RMB exchange rate formation mechanism type has become increasingly unsuited to China 's economic reform and development requirements. It is demonstrated by the defects are:

Until the 1970s, central banks used a currency peg, which linked the value of the domestic currency to the value of another currency, usually of a low-inflation country. But this approach meant that the country’s monetary policy was tied to the country to which it pegged, restraining the central bank’s ability to adapt their policy to shocks such supply shocks or changes in the real interest rate. Consequently, many central banks began to adopt flexible exchange rates, forcing them to find a new strategy for the conduct of monetary policy.

In Nigeria, the return to democratic rule in 1999 led to a myriad of programmes and strategies that were aimed at refocusing the face of the economy so as to resolve the difficulties which years of military rule had placed on it. This reform was, conceptualized principally in the form of a medium term development strategy called the National Economic

The Foreign Exchange Regulation Act or FERA, passed by the Parliament in 1973, was framed to eradicate crimes relating to foreign exchange in the country , such that the economic development, which was still in its pre-liberalization era and thus slow, was not adversely affected. It was also to preserve the scarce Forex or foreign exchange currency in the country and hence tried to keep a strict control on these particular resources. However, it was repealed and replaced by the Foreign Exchange Management Act (1999) to reinforce and fortify the development and the maintenance of the foreign exchange resources in the country. It was more extensive, comprehensive and since the floodgates of the economy had opened after liberalization in 1991, had more scope to actually reinvigorate the availability of foreign exchange in the country.