Foreign exchange reserves

Chapter 5 Exchange Rate Systems questions 1. How can you quantify currency risk in a floating exchange rate system? Answer: To characterize the risk of a currency position, you must try to characterize the conditional distribution of the future exchange rate changes. With floating exchange rates, historical information provides useful information about this distribution. For example, you can use data to measure the average historical dispersion (standard deviation or volatility)

China: To Float or Not To Float? International Finance Executive Summary On July 21, 2005, China revalued its decade-long quasi-fixed exchange rate of approximately 8.28 yuan per U.S. dollar by 2.1% to 8.11. Simultaneously, the People’s Bank of China announced that the daily trading band of 0.3% against the dollar would be maintained. Many analysts and economists believed that the real trade-weighted value of the renminbi was undervalued by up to 30% to 35%. Companies that produce in

many factors involved and questions that can arise when it comes studying central banking and Foreign Exchange Markets. This paper will attempt to explain why the simultaneous targeting of the money supply and interest rate is at times impossible to achieve, ways in which Central Banks can intervene in Foreign Exchange Markets, and what the Britton Woods Agreement did to the ability of foreign exchange rates to fluctuate freely. First one must understand, that the money supply and

index has exhibited a clear long-term downward trend since 2002. This is a cause for concern among emerging markets because a large proportion of their foreign exchange reserves is held in dollar denominated assets. The dollar accounts for 62 percent of allocated foreign exchange reserves around the world and for 58 percent of the allocated reserves of emerging and developing economies . Most central banks would incur considerable losses on their investments if the depreciation of the dollar continues

leading to a large reserve drawdown of US$ 10.4 billion in that quarter. FDI net inflows continued to be buoyant with steady inflows into India backed by low outgo of outward FDI in the first two quarters. In the third quarter, while there was turnaround in the flows of FIIs and copious inflows under NRI deposits in response to the special swap facility of the RBI and banks’ overseas borrowing programme, there was some diminution in the levels of other flows. This led to a reserve accretion of US$

assume the creation of the swap lines, designed for solving the liquidity problems on the world financial markets. Main body Forming of swap lines between two central banks means that in case the need emerges, the banks are obliged to effect the exchange of the

A conventional pegged currency is one in which a country decided to have an exchange rate that is set and not able to fluctuate freely with the market forces. They set their currency by pegging their exchange rate to another countries currency or a basket of currencies, where a basket is made up of the countries major trading partners and weighted by geographical distribution of trade, services or capital flows. In the past countries have also pegged their currency to another measure of value such

Topic 22 Arguments against flexible exchange rates include the arguments that they cause uncertainty, they inhibit international trade and that they allow destabilizing speculation. Arguments against fixed rates include that they cause uncertainty, they inhibit international trade and they allow destabilizing speculation. Contrast the situation in one country with a fixed exchange rate with one country that has a floating rate and explain the impact of the fixed and floating rates. Introduction

Introduction The main purpose of this essay is to analyse the mechanism behind the foundation of Bretton Woods system and how this system worked from 1944 to 1973. Analysis includes the mechanism of the fixed exchange rate regime based on gold and the US dollar and also includes the factors and reasons that led the system to collapse. Background of Foundation of the Bretton Woods System As far back as the World War II, the United States has been attempting to replace the Great Britain, establishing

and price levels (include exchange rates). Organization of the course 1) Introduction – chapter 13 2) Interest rate parity (how exchange rate is determined by the flows of capital) and exchange rate overshooting – chapters 14 & 15 3) Purchasing power parity and the exchange rate in the long run (how exchange rate is determined by the flows of goods and the determinants of exchange rate in the long run) – chapter 16 4) The DD-AA model (the model that explains how exchange rate and output are determined