INTERNATIONAL FINANCE
“The impossible Trinity”
Has the “Managed Float” approach worked for Trinidad and Tobago?
The Impossible Trinity: Managed Float in Trinidad and Tobago
International economics holds the hypothesis that it’s impossible for a country to simultaneously execute: 1. A fixed exchange rate 2. Free capital movement and, 3. An independent monetary policy
This trilemma or “Impossible Trinity” as it is commonly referred to, is one of those aspects of the nature of things, like scarcity and asymmetric information that makes life difficult. Specifically, the trilemma means that a country can follow only two of the three aforementioned policies at once. To keep exchange rates fixed, the central bank must
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The strength of the country’s currency is reflected in the high foreign exchange reserve. Moreover, foreign currency accounts in local banks held by ordinary citizens and companies now total over US$3 billion. Does this however, mean success?
While a strong currency results in cheaper imported products and also lowers prices for domestic goods and services as many goods and services have parts and components that originate in foreign countries, the primary disadvantage of having a strong currency is, foreign consumers have had to pay higher prices to purchase goods and services from our country, which resulted in a decrease in the demand for our goods and services.
In a nutshell, the managed float system has helped in strengthening our currency however; this has benefited foreign economies and thus has negatively affected the domestic economy as it has increased demand for foreign goods and services; evident by our 4 billion dollar food import bill, without necessarily increasing demand for goods and services domestically. Therefore it has not helped in maximising the full potential of our economy.
Recommendation
One possible solution though, is dollarization which means replacement of the local currency. This offers three major benefits (apart from the general advantage of reduced transactions costs). First, administrative expenses are reduced. No longer will the government incur the cost of maintaining an
Well it’s not good special for international student, we have to change more in our currency money to be US dollar. When U.S dollars stronger than national currency, import are less expensive. So American people can buy products good and services cheaper. In face it will lead to increase demand for the currency needed to purchase products and imported products because you can buy more products or the product is cheaper and it increase the economies in US. For example, we order clothes from china the same amount of money, we can buy more cloth and we won’t have to spend many money to do it. But for the business local currency becomes weak and down in valve, then the products in US are importing become more expensive. Also increase in the demand on the foreign change market more increases the price of its currency, Other country become demanding more US Dollars in order to pay for these services and commodities. International labor increase more if US dollars more strong so They can change US dollars more money in their countries, Changes in nationwide incomes in foreign countries as well as in the United States. On other hand export less because US dollars strong and other countries decrease demand products from US because US products good is more expensive. Also people buy foreign products rather than domestically produced goods and become to effect to US export. It capacity make business
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
The beneficial effects on the economy may take as much as two years to be fully felt. I Further, the UK should be careful not to rely on a weak currency in order to support its competitiveness. An Exchange rates tend to fluctuate in value over time and the strongest economies are usually those with high productivity and low production costs, or those which produce highly innovative products. The long term performance of the UK economy could be adversely affected if a weakening of the currency was allowed to distract from these more fundamental determinants of economic performance. An Overall, however, in the current context, a weakening of Sterling is likely to be seen as beneficial for the UK economy, helping to support it through a difficult time and aiding a rebalancing of the economy towards the export sector. Despite this, it should be remembered that in other contexts, for example when controlling inflation is a more pressing problem, a fall in the exchange rate could be damaging.
At the center of the Christian faith is a mystery. This mystery has everything to do with the identity of God, the nature of Christian community, the salvation history and our understanding of Christology. This is the mystery of the Trinity – how is the Godhead fully three persons, and yet one nature? Theophilus was the first to name the ‘triad’ nature of God in his letter To Autolycus in 170 A.D. Tertullian was the first to offer terminology to describe this mystery in Against Praxeas claiming “the Trinity” involved three ‘persons’ of one substance. This theology emerged from the Biblical witness, even though scripture offers no doctrine of the Trinity itself. Even more so, the development of the doctrine of the Trinity grew from the early church’s worship, witness and corporate experience. When faced with a mystery, heresies can’t help but emerge. Docetism and Arianism, Adoptionism and Monarchianism, Nestorianism and Monophysitism are just a few of the heresies that emerged in attempts to explain away the mystery. And yet, theologians from the second century to the twenty-first century are faced with the challenge of witnessing to this mystery in both the theologia and the oikonomia of the Trinity. The church experiences the economic Trinity as new believers are drawn into Trinitarian community through an ongoing
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.
Strong is good. Weak is bad. These generalizations sound simple enough, but they can be very confusing when come to money. Is a "strong" U.S. dollar always good? Is a "weak" dollar always bad? Understanding of it is a necessary in marketplace. The term such as “Strong” and “weak” dollar is a “hot topic” which always bandied about by economist on a daily basis and also public. This issue is so important to almost every one. It seems like part and parcel of people who very concern about currency likes investors, economist, foreigners who study or working in the United State and so on.
An exchange rate is the price for which one currency is worth converted into another rate. The exchange rate is determined by the supply and demand conditions of relevant currencies in the market transaction of currency exchanges occur in the foreign exchange markets. For example, currently, the £1 is worth $1.67 which means that at this stage, the pound is stronger than the dollar. Businesses should ensure that they frequently check the exchange rates to see if any changes to their prices need to be made or if the exchange rate benefits them. If Iron Bru were to export a large amount of products to a country such as Germany or Poland, there will
- For the foreign producers, when their currency weakens, production becomes cheaper (especially if they have currency reserves in dollars), and their sales go up, since the weaker currency is more attractive to foreign buyers.
‘What’s best for the United States?’ is the question that lingers on everyone’s mind. This is an opinion based question in which depends on how seriously you take this matter. Based on the information and research, the US needs a weak currency to keep demands domestic and in profitability of US corporations. The strong currency has been hurting US firms that have large businesses overseas and most oversea business converts their financial statements to the US dollars before their
With the mortgage crisis recorded in the United States, the country’s currency declined in value in respect to other world currencies. Increase in money supply led to an increase in the volume of money in circulation in the United States. This led to a rise in prices of goods. Because of this, the value of the dollar declined in the international money markets. The decline in value of the dollar led to imports becoming very expensive. This further reduced the country’s production capability, leading to a further economic decline. A devalued currency makes a country’s exports cheaper than those of other countries. This has the potential of boosting the level of exports in countries with devalued currency thus reducing their balance of
The United States should pursue and implement policies that are export oriented and keep the dollar relatively undervalued. Right now, there is much controversy over whether or not the U.S. should pursue a strong or weak dollar. It is important to note this controversy because exchange-rate policies are fueled by interest groups who are seeking to advance their economic statuses. An exchange rate is the price of one currency in comparison to another, and are determined by supply and demand. The determination of how much a dollar can appreciate or depreciate is political decision set forth by government. However, government is vulnerable and accountable to the competing pressures of interest groups. Ultimately, the opposing groups have different policies that will advance their economic gain, these policies are directly contradictory and are dependent on the value of the dollar.
This policy has numerous advantages and disadvantages for various stakeholders in both the long and short run. Reducing inflation will allow for the retainment in the peso’s local value and greater price stability in the long run. Thus, consumers and businesses can take more time in making spending decisions and not risk having their money depreciated. The price stability will also allow for the reduction in menu costs for businesses, potentially increasing long term customers and especially those on fixed incomes and
Consequences regarding the international businesses and the flow of trade and investment among the three countries are given below as benefits and drawbacks of holding fixed exchange rate system-
1. The gold standard and the money supply. Under the gold standard all national governments promised to follow the “rules of the game”. This meant defending a fixed exchange rate. What did this promise imply about a country’s money supply? A country’s money supply was limited to the amount of gold held by its central bank or treasury. For example, if a country had 1,000,000 ounces of gold and its fixed rate of exchange was 100 local currency units per ounce of gold, that country could have 100,000,000 local currency units outstanding. Any change in its holdings of
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.