Crisis Of The EMS Essay, Research Paper
Chaos in The Currency Markets : Currency Crisis of The EMS
1. What does the crisis of September 1992 tell you about the relative abilities
of currency markets and national governments to influence exchange rates?
The currency markets and national governments both have abilities to
influence exchange rates. Like other financial markets, foreign exchange markets
react to any news that may have a future effect. Speculators are the part of the
currency markets that take currency positions based on anticipated interest rate
movements in various countries. Day-to-day speculation on future exchange rate
movements is commonly driven by signals of future interest rate movements. By
using the signal, speculators usually take the position before the things
actually occurred. Sometime, if high power enough, the speculators position can
influence the exchange rate movement. The government controls is one of the
factors affecting exchange rate. The government can influence the equilibrium
exchange rate in many way, including direct intervening (buying and selling
currencies) in the foreign exchange markets and indirect intervening by
affecting macro variables such as interest rates.
2. What does the crisis of September 1992 tell you about the weakness of fixed
exchange rate regimes?
From European currency crisis of September 1992, it shows us that there
are weakness of the fixed exchange rate system. When exchange rate are tied, a
high interest rate in one country has a strong influence on interest rates in
the other countries. Funds will flow to the country with a more attractive
interest rate, which reduces the supply of fund in the other countries and
places upward pressure on their interest rates. The flow of fund would continue
until the interest rate differential has been eliminated or reduced. This
process would not necessarily apply to countries outside ERM that do not in the
fixed exchange rate system, because the exchange rate risk may discourage the
flow of funds to the countries with relatively high interest rate. However,
since the ERM requires central banks to maintain the exchange rates between
currencies within specified boundaries, investors moving funds among the
participating European countries are less concerned about exchange rate risk.
3. Assess the impact of the events of September 1992 on the EU ’s ability to
establish a common currency by 1999.
A major concern of a common currency is based on the concept of a single
European monetary policy. Each country’s government may prefer to implement its
own monetary policy. It would have to adapt to a system in which it had only
partial input to the European monetary policy that would be implemented in all
European countries, including its own. The system would be alike to that used in
the U.S., where there is a single currency across states. Just as the monetary
policy in the U.S. cannot be separated across different states, European
monetary policy with a single European currency could not be separated across
European countries. While country governments may disagree on the ideal monetary
policy to enhance their local economies, they would all have to agree on a
single European monetary policy. Any given policy used in a particular period
may enhance some countries and adversely affect others.
There are some other concerns that could prevent the implementation of a
single currency. For example, at what exchange rate would all currencies be cash
in to be exchanged for the common currency to be used? (think about the trouble
after reunification of Germany). It would be difficult to reach agreement on
this question for each European country’s home currency. Also, some economists
believe that changing exchange rates serve as a stabilizer for international
trade. Thus, the lack of an exchange rate mechanism could possibly cause greater
trade imbalances between countries.
4. The crisis of September 1992 occurred because the ERM system was too
inflexible. Discuss.
The inflexible system was not the main reason. The main reason is
because there are too different monetary policies among the member of ERM. The
German government was more concern about inflation and less concerned about
unemployment because its economy was relatively strong. On the other hand, other
European governments were more concerned about stimulating their economies to
reduce their high unemployment levels. This argument was proved at the end of
the crisis when Germany and France ?s government joined forces to defend the
franc against speculative pressure. If all the member joined forces early the
crisis may not occur.
5. If you were an executive for a company that engages in substantial intra-EU
trade, how would you react to the events of September 1992?
Because the company engages in substantial intra-EU trade, the exchange
rate risk is not the major issue-under fixed exchange rate system the exchange
rate will fluctuate narrowly. A major concern is the interest rate movement.
High interest rate results in high cost of capital to the company and slow
growth economic. The problem will even more serious if the company have to pay
floated rate liabilities in foreign currencies. The company should consider
hedging against interest rate risk such as using interest rate swap or using
fixed rate liabilities.
Другие работы по теме:
The Wonderful Wizard Of Oz As A
Populist Allegory Essay, Research Paper The Populist Party came about in the late 19th century, at which time farmers were suffering from declining agricultural prices. Many believed that the federal government’s currency policy favored eastern banks and industrialists at the expense of farmers and workers.
On The Chinese Dynasty Essay Research Paper
Dear Editor, I am a 16 century trader. I have been to China. I have seen all the things Marco Polo has seen. I know that he was not telling a lie at all. I am very angry that you did not believe him. I am writing to defend him.
Flucations In The Australian Dollar Essay Research
Paper The Australian Dollar is a “Commodity Currency”. A “Commodity Currency” means that its fortunes are heavily dependent on the prices of Gold, Copper, Nickel, Coal and Wool. All of these commodities are Australia?s main exports.
Dollarization Essay Research Paper Richard W Stevenson
Dollarization Essay, Research Paper Richard W. Stevenson s article Greenspan View on Wider Use of Dollar discusses a process he refers to as dollarization. According to Mr. Stevenson, A number of countries have been considering abandoning their national currencies and adopting the American dollar the accepted international benchmark of stability as a way of reducing interest rates, inflation, and exchange rate volatility.
Chaos Making A New Science Essay Research
Paper Chaos: Making A New Science Chaos by James Gleick presents to its readers the idea of a new science. Gleick shows this new science as a deviation of old conventional science; which gives rise to new ideas and new ways to look at old problems. In order to make his point; Gleick traces the lives of many different scientists throughout history.
The Bank Of The United States Essay
, Research Paper A national bank is an essential part of this nation’s economy! It can further strengthen the ties between rich Americans and the federal government.1 It has stabilized this nation’s economy, united the country, and improved trade between the colonies.
Banking Essay Research Paper
Chapter 1 Typical commercial bank organization. ?* Shareholders?* Board of Directors?*Chairman of the Board?* President?* Specific officer positions,
Canadian GDP Essay Research Paper The output
Canadian GDP Essay, Research Paper The output or GDP of Canada has increased from 1995 to 1999. This means that more people became employed or productivity has risen. With the GDP on the rise, Canada is able
Economic Consequences Of The Single European Curre
Essay, Research Paper Economic consequences of a Single European Currency A large part of the attraction to those businesses which have declared themselves in favour of joining the single currency lies in the notion that Euroland will be a zone of economic stability, within which effective business planning can take place and growth be enhanced.But will Euroland in fact exhibit these characteristics? Will it be a zone of stability? Will it be a zone of growth? Will it be a zone of high employment? The answer to all three questions could well be a ‘no’.
Preventing Counterfeit Money Essay Research Paper Do
Preventing Counterfeit Money Essay, Research Paper Do you even know how to determine whether or not currency is counterfeit? According to the Federal Reserve, Because US currency is universally accepted and trusted, it is widely counterfeited. Many people have attempted to copy the patterns of US currency in an effort to create their own counterfeit money.
Doing Business With The Former Soviet Republic
Essay, Research Paper CASE 1.2 Doing Business with the Former Soviet Republic 1.FACTS - as managers become aware of all the different people with old U.S.S.R., U.S. businesses are realizing that they face not just one but fifteen or more new markets opening themselves to western trade.
Gilded Age By Mark Twain Essay Research
Paper The last quarter of the nineteenth century was dubbed the Gilded Age by Mark Twain for its shallowness and corruption in both American society and politics. The most consuming governmental issues at the national level were the tariff, currency, civil-service reform, and government regulation of railroads, but the prevailing sentiment in Washington was to run a limited, laissez-faire government that would foster economic growth.
Euro Essay Research Paper The Most Interesting
Euro Essay, Research Paper The Most Interesting Event The progress of the Euro was the most interesting event occurring throughout this period. Never before has a currency united so many powerful economic nations. It is very interesting to see the progress it has made and changes it has influenced.
Euro In America Essay Research Paper On
Euro In America Essay, Research Paper On January 1,1999, the world witnessed a change never seen before: eleven nations of the European Union fixed their currencies to each other and established the world?s first common currency, the Euro. The creation of a single European currency will be the most important development in the international monetary system since the adoption of flexible exchange rates in the early 1970.
The Federal Reserve Essay Research Paper The
The Federal Reserve Essay, Research Paper The Federal Reserve System ?The Federal Reserve System is the central bank of the United States. It was founded by Congress in 1913 to provide the nation with a safer, more flexible, and more stable monetary and financial system.?
Foreign Exchange Dollar Falls Vs Yen Essay
, Research Paper Foreign Exchange Dollar Falls vs. Yen, Stays Flat vs. Others As Traders Await Fed Move, Japan Data By Jennifer M. Barrett 03/21/2000 The Wall Street Journal
The Economy Brazil Pushes Markets To The
Edge Essay, Research Paper It may appear strange that the problems facing the Brazilian economy effects the U.S. as well. The financial depressions of Brazil bring the wealth of the nation down in turn. Brazil is the largest economy in Latin America, accounting for almost half of the continent’s total output, and it is the eighth largest economy in the world.
Malaysia Essay Research Paper Malaysia
Malaysia Essay, Research Paper Malaysia’s Defiant Surrender Key points:+ Malaysia’s currency controls in September 1998 was a signal of the government’s refusal to accept any blame for its financial troubles, and its readiness to make foreign investors suffer for the sins of the international markets.+ One control was preventing foreigners from taking money out of the stock market for a year-lifted on February 4, 1999.+ On February 4th, Malaysia’s currency still worthless abroad.+ Malaysian government imposed hefty penalties on investors:If money invested before February 15th and repatriated before the end of March-30% levyIf money invested after February `14th and repatriated anytime after-30% tax on 1st year profits.+ Malaysian government targeted only certain foreign direct investors.+ New FDI commitments fell by 12% in 1998.+ The bigger question surrounding the controls has always
Progress To EMU Has Been Too Rash
And Hasty Essay, Research Paper Despite the healthy support given to EMU by the likes of Helmut K?hl, Jaques Delors and Fran?ois Mittererand, there are some arguments that progress towards EMU has been too rash and hasty for it to be successful.
Thailand
’s Economy Essay, Research Paper Asia has been the world’s economic miracle for the last 30 years. South Korea, Hong Kong, Taiwan, Indonesia, and the Philippines have achieved remarkable rates of growth, building high quality manufacturing industries in everything from clothes to computers. Why then, are these economic tigers now struggling with collapsing currencies and plunging stock markets? The simple answer is debt.
Euro
– Currency For Europe Essay, Research Paper This is the European Commission’s internet site dedicated exclusively to the euro – one currency for Europe. Whether you are a citizen interested in your future currency, a specialist working on technical preparations for the changeover, or a surfer passing by; this site has useful and interesting information in all eleven official languages of the European Union.
George Sorors Essay Research Paper Many economists
George Sorors Essay, Research Paper Many economists agree that there is a significant imbalance between the growth of global economy and the development of a free society. One of these economists who agrees with this point is George Soros. Soros bases his dilemma mainly on the Thai crisis that hastened the currency meltdown in Asia.
The Euro Essay Research Paper On January
The Euro Essay, Research Paper On January 1, 1999, eleven European countries replaced their national currencies and introduced a single European currency, the Euro. As of then, the Euro is considered to be the official currency in the eleven participating countries. Bills and coins of the national currencies will remain in circulation as sub-denominations of the Euro until January 1, 2002, when they will be exchanged against new Euro coins and bills.
The Euro Essay Research Paper 11 nations
The Euro Essay, Research Paper 11 nations merged currencies to create the euro. Europe?s leaders say that the unified currancy will promote bussiness, underpin unity and strengthen their role in world affairs. Officially at midnight on New Year?s Eve the euro became the common currency of Germany, France, Italy, Spain, the Netherlands, Belgium, Austria, Portugal, Finland, Ireland and Luxembourg.
European Union Description Essay Research Paper In
European Union Description Essay, Research Paper In 1967, three European institutions merged. The three institutions were the European Coal and Steel Community (ECSC), the European Economic Community (EEC), and the European Atomic Energy Community (Euratom). When the three merged, they formed the European Community or EC.
European Monetary Union Essay Research Paper The
European Monetary Union Essay, Research Paper The liberalization of trade is a historical phenomenon, which goes back a long way. Never before has any regional grouping made up of sovereign countries succeeded in taking economic integration as far as the European Union has done. Customs duties between European countries started to come down steadily in the early 1950s and disappeared entirely in 1968 with the introduction of a customs union and the implementation of the common external tariff.
American Revolution Essay Research Paper The American
American Revolution Essay, Research Paper The American Revolution was largely economic and political in nature. The political reasons were that England neglected the colonies, taxation without representation and limitation of individual rights and privacy. Then there was the most important side the economic.
Exchange Rates Essay Research Paper What is
Exchange Rates Essay, Research Paper What is an exchange rate? What factors determine the exchange rate for the Australian dollar? An exchange rate is the ratio at which a country’s currency exchanges for the currency of another country. Exchange rates are typically expressed as the foreign currency equivalent of one unit of domestic currency.
The History Of The Euro Essay Research
Paper Michael Younan The History of the Euro Recently members of the European Community have proposed the “Euro” as the name of a united currency. The idea for a common currency is not a new one. For years European banks have been using ECUs as the basis for the European Monetary System and it will now be exchangeable equally for new Euros.
East Asian Crisis In The Economy Essay
, Research Paper A large economic downturn in East Asia threatens to end its nearly 30 year run of high growth rates. The crisis has caused Asian currencies to fall 50-60%, stock markets to decline 40%, banks to close, and property values to drop. The crisis was brought on by currency devaluations, bad banking practices, high foreign debt, loose government regulation, and corruption.
International Relations Realism Essay Research Paper In
International Relations: Realism Essay, Research Paper In the discipline of International Relations realism, which developed as a reaction to idealism during the Cold War, has become the dominant school of thought . Realism makes power the currency of international politics. Realist argue that by accumulating power states can ensure the security of the population within the state.
Asian Economic And Financial Crisis Essay Research
Paper Asian Crisis The crisis began in Thailand in July 1997 and spread to Indonesia, the Philippines and Malaysia, then to Hong Kong, Korea and Japan. Financial systems in Thailand, Korea and Japan all came under intense strain, but nowhere as destructively as in Indonesia, which by early 1998 had become the worst-affected victim.
Asian Essay Research Paper After nearly thirty
Asian Essay, Research Paper After nearly thirty years of great economic growth many Asian countries are in recession due to many bad business decisions. The Asian financial crisis caused the value of Asian currency fall 50-60 percent, stock markets to decline by 40 percent, property values to drop, and banks to close.
Asian Crisis Essay Research Paper Asian Crisis
Asian Crisis Essay, Research Paper Asian Crisis The financial crisis that erupted in Asia in mid-1997 has led to sharp declines in the currencies, stock markets, and other asset prices of a number of Asian countries. It is hard to understand what these declines will actually do to the world market. This decline is expected to halve the rate of world growth in 1998 from the four percent that was projected pre-crisis to an estimated outcome of about 2 percent.