...For the exclusive use of D. LEE 9-204-037 JANUARY 6, 2004 MIHIR A. DESAI MARK F. VEBLEN Exchange Rate Policy at the Monetary Authority of Singapore Dr. Khor Hoe Ee, Assistant Managing Director, Monetary Authority of Singapore (MAS), reviewed the year-end economic data for 2001. He had just met with a number of his colleagues and now paged through the statistics they had discussed. Dr. Khor wondered whether the monetary system that has served Singapore so well since the late 1970s—and had filled the void left by the collapse of the Bretton Woods currency system—was still the best model for Singapore to follow. Singapore’s managed float, sometimes referred to by journalists as a “dirty float,” stood in contrast to the systems used by some of its neighbors: Hong Kong had remained strongly committed to its peg against the U.S. dollar, and Australia had just recently shifted to a completely floating regime. A key item on the agenda for the Monetary Policy Committee meeting at the end of January was to review and set monetary policy in response to the changing economic environment. As head of the MAS’s Economics Department, Dr. Khor knew that he was responsible for recommending a policy response that would be consistent with Singapore’s strategy for sustainable economic growth with price stability as well as supporting Singapore’s role as a major global financial center. A great deal had happened in the domain of monetary policy in the last five years, much...
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...than the debit. It means that this country is using its saving for investing. In Singapore, the government is heavily managed the country’s economy. It promotes high levels of savings. Also, the Monetary Authority of Singapore focuses on accumulating foreign reserves. Consequently, Singapore became a net creditor to other countries. It has a large current account surplus and saving accumulation in excess of domestic investment demand, which lead to produce a long-term real appreciation of the SGD. 2. What is a real exchange rate? What determines real exchange rates in the long-run? Real Exchange Rate = Nominal Exchange Rate - Inflation It’s the ratio at which any country’s own currency is equivalent to other currencies in terms of purchasing power. It discounts inflation from the nominal interest rate. It also provides a better measurement of countries exchange rates. The Monetary Authority of Singapore focused mainly on inflation and didn’t use exchange rate as a competitive tool. Therefore, Singaporean...
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...Studi Politici e Internazionali ‘International Economic and Trade Relations’ LM–62 MASTER THESIS in DEVELPOMENT ECONOMICS Foreign Exchange regimes and major currencies Supervisor Student Prof. Paolo Sospiro Parapatakam Praveen Reddy MAT: 62282 ACADEMIC YEAR 2013/2014 Contents Introduction 5 Chapter 1 7 1. History of exchange rate regimes: 7 1.1 Gold Standard System (1880-1914): 7 1.2 Interim instability (1914-1944): 7 1.3 Bretton woods system (1946-1971). 8 Figure1.World Trade (1929-33).............................................................................................9 1.4 Par Value system: 9 2. Classification of Exchange Rate Regimes: 10 2.1 De facto Classification (1998-2009) 11 Diagram1. De Facto Classification of Foreign Exchange Regimes (Nov 1998 – Jan 2009).......12 2.2 Revised De Facto Classification System (2009 January to Present): 15 Table1. Shares of Classifications Using the 1998 and 2009 Systems. 16 2.3 Revised Classification System Definitions: 17 Hard pegs: 17 Soft pegs: 18 Floating arrangements: 19 Residual: 20 2.4 De facto Classification of Exchange Rate Arrangements and Monetary Policy Frameworks-2014 20 Table2. Monetary Policy Frame work .............................................
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...October, 2012 Question Two Discuss the various factors that determine the exchange rate regime. Introduction This paper is an attempt to discuss various factors which determine the exchange regime in relation to the international trade. The paper will provide a brief overview of the exchange rate regimes in the international trade, define key terms. It will also explore the various types of exchange rate regime practiced in the international and finally it will delineate the main factors that determine the exchange rate regime. Overview of exchange rate in the International trade. The choice of an appropriate exchange rate regime for developing countries has been at the center of the debate in international finance for a long time. The steady increase in magnitude and variability of international capital flows has intensified the debate in the past few years as each of the major currency crises in the 1990s has in some way involved a fixed exchange rate and sudden reversal of capital inflows. While the debate continues, there are areas where some consensus is emerging, and there are valuable lessons from earlier experience for developing countries. Selection of an exchange rate regime that is most likely to suit a country’s economic interest would depend on a variety of factors as discussed bellow (Yagci, 2001). Definition of Key terms Exchange Rate. Exchange rate refers to the value of one...
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...China’s Exchange Rate Regime and its Effects on the U.S. Economy John B. Taylor Under Secretary of Treasury for International Affairs Testimony before the Subcommittee on Domestic and International Monetary Policy, Trade, and Technology House Committee on Financial Services October 1, 2003 Chairman King, Ranking Member Maloney, Members of the Subcommittee, thank you for giving me the opportunity to testify on China’s exchange rate regime and its effects on the U.S. economy. This is the fifth time that I have appeared before this Subcommittee as an Administration witness. Each time I have been asked to focus on an important facet of our international economic policy. I have testified on our policy toward emerging markets, on our policy for developing countries-including reforms at the Multilateral Development Banks and the new Millennium Challenge Account, and on our policy to remove barriers to the free flow of capital in our trade agreements-including those with Singapore and Chile. In each of these cases, an underlying goal of our policy has been to raise economic growth and increase economic stability around the world, and in doing so benefit the American people with more jobs, more security, and a better life. My testimony today on China’s exchange rate regime will be no different in this respect. The Overall International Economic Strategy for Growth and Stability The Administration’s major economic endeavor now is to strengthen the economic recovery...
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...EVOLUTION OF EXCHANGE RATE REGIME: IMPACT ON MACRO ECONOMY OF BANGLADESH by Liza Fahmida A project submitted in partial fulfillment of the requirements for the degree of Professional Master in Banking and Finance Examination Committee: Dr. Sundar Venkatesh (Chairperson) Dr. Juthathip Jongwanich Dr. Yuosre Badir Nationality: Bangladeshi Previous Degree: Master in Finance and Banking University of Dhaka Bangladesh Scholarship Donor: Bangladesh Bank Asian Institute of Technology School of Management Thailand May 2012 i ACKNOWLEDGEMENT The dissertation paper entitled “Evolution Of Exchange Rate Regime: Impact On Macro Economy Of Bangladesh” has been prepared for the partial fulfillment of Professional master in Banking and Finance (PMBF) program conducted by School of Management, AIT, Thailand. I would like to offer my wholehearted gratitude and respect to a good number of people who offered encouragement, data and information, inspiration and assistance during the course of constructing this dissertation paper. It would be difficult to prepare the paper and to present it in a lucid manner within stipulated time without the help of my guide teacher Dr. Sundar Venkatesh, Adjunct Faculty, School of Management, Asian Institute of Technology, Thailand. His utmost care, constant support and meticulous supervision guided me through the process. I am indebted to Begum Sultana Razia, General Manager, Monetary Policy Department, Bangladesh Bank, whose sincere co-operation...
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...Foreign Exchange Market as well as the Net International Reserves, their stabilizing methods and strategies, along with a discussion on the analysis and effects of the measures taken to attain success within the Jamaican economy. The foreign exchange market is defined as (main function) a market used for converting from one country’s currency to another using an exchange rate which determines the value of one country’s currency against another. The Jamaican foreign exchange market came to full liberalization in the 1990’s. Since then there has been much discussion on the efficiency of the market and the appropriateness of the foreign exchange rate. “The use of market microstructure models has become very popular in financial market research stemming from the inability of traditional macroeconomic models to adequately capture the short-term dynamics of financial markets” (Frankel and Froot, 1990).There have been concerns as to whether the foreign exchange rate correctly reflects the forces of supply and demand in the market. The role of the Bank of Jamaica when it pertains to foreign exchange market is market intervention, market surveillance and data collection and information dissemination; with particular attention paid to intervention. The secondary function of the foreign exchange market is to provide insurance against foreign exchange risk. Foreign exchange risk can be defined as any adverse consequence or unpredictable change that may occur to the exchange rate. ...
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...Chapter 8 The Policy Trilemma in Open Economies Chapters 6 and 7 discussed the choice of an exchange rate regime as a monetary policy instrument, and examined the advantages and disadvantages of pursuing fixed versus floating exchange rate regimes under perfect capital mobility. Under each regime, we considered the effectiveness of fiscal policy, effectiveness of conventional monetary policy (ability to influence domestic short term interest rates), and exchange rate stability. We found that, although only a credible fixed exchange rate regime achieves bilateral exchange rate stability, no single exchange rate regime entirely dominates the other in terms of the effectiveness of monetary and fiscal policies. These findings suggest that the choice of an exchange rate regime presents genuine tradeoffs for policy makers, and it is time to discuss several factors that would guide such a choice in practice. In reality, hard pegs and floats represent the two idealized extremes of a spectrum of exchange rate regimes. Within that spectrum, there is a variety of options available to policy makers, but these options require additional policy instruments. One such policy instrument is capital controls, which affect the incentives underlying international capital mobility. So, in this chapter we discuss the form and consequences of these capital controls as a policy instrument. Given that capital controls constitute a third policy instrument, it is useful conceptualize policy choices using three intermediate...
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...the economic implications and foreign exchange risk of the system of exchange rate for multinational companies with subsidiaries which are located in countries with systems such as managed floating exchange rate, fixed exchange rate linked to a basket of currencies and also a fixed exchange rate backed by a currency board system. Unlike the freely floating exchange rate system which has never been applied under its purest form, monetary authorities is required by the managed floating rate in order to interfere in foreign exchange markets to prevent the currencies from moving too far from an apparent fundamental value. 2. i. Managed Floating Rate More and more...
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...BOFIT Discussion Papers 19 • 2011 Zhichao Zhang, Nan Shi and Xiaoli Zhang China’s new exchange rate regime, optimal basket currency and currency diversification Bank of Finland, BOFIT Institute for Economies in Transition BOFIT Discussion Papers Editor-in-Chief Laura Solanko BOFIT Discussion Papers 19/2011 23.7.2011 Zhichao Zhang, Nan Shi and Xiaoli Zhang: China’s new exchange rate regime, optimal basket currency and currency diversification ISBN 978-952- 462-714-6 ISSN 1456-5889 (online) This paper can be downloaded without charge from http://www.bof.fi/bofit Suomen Pankki Helsinki 2011 BOFIT- Institute for Economies in Transition Bank of Finland BOFIT Discussion Papers 19/2011 Contents Abstract ................................................................................................................................................ 3 Tiivistelmä ........................................................................................................................................... 4 1 2 Introduction ................................................................................................................................ 5 Theoretical model ..................................................................................................................... 11 2.1 2.2 2.3 2.4 2.5 2.6 2.7 2.8 3 Policy goal .................................................................................................................... 12 Trade...
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...Forecasting the USD/COP Exchange Rate: A Random Walk with a Variable Drift Peter Rowland Banco de la República* Abstract This study develops three exchange rate models as well as a simple statistical model defined as a random walk with a variable drift. The exchange rate models all use the purchasing power parity hypothesis to account for the long-term relationships between prices and the exchange rate, together with error correction models to represent any shortterm dynamics. The models are estimated for the USD/COP rate of exchange, and their forecast performance is compared to that of a simple random walk as well as to that of the random walk with a variable drift term. Two of the models are shown to outperform the simple random walk on the 12 and 24-months forecasting horizon. However, all the models are outperformed by the random walk with a variable drift, where the drift term is estimated using a Kalman filter. The results suggest that fundamental models might only be a useful tool for forecasting of the exchange rate in the very long run. The opinions expressed here are those of the author and not necessarily of the Banco de la República, the Colombian Central Bank, nor of its Board of Directors. I express my thanks to Luis Eduardo Arango, Javier Gómez, and Luis Fernando Melo for helpful comments and suggestions. Any remaining errors are my own. * Contents 1 2 2.1 2.2 2.3 2.4 2.5 2.6 3 3.1 3.2 3.3 3.4 3.5 3.6 4 4.1 4.2 4.3 5 Introduction Exchange Rate Models A Random...
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...com/eng/plan-your-trip/practicalities/other-information/money.jsp#ixzz2ikNNjn9t which is pegged to the US dollar at a rate of about 7.80 HKD to 1 USDSource: http://www.discoverhongkong.com/eng/plan-your-trip/practicalities/other-information/money.jsp#ixzz2ikOBDEGm which is pegged to the US dollar at a rate of about 7.80 HKD to 1 USDSource: http://www.discoverhongkong.com/eng/plan-your-trip/practicalities/other-information/money.jsp#ixzz2ikOSqV4B which is pegged to the US dollar at a rate of about 7.80 HKD to 1 USDSource: http://www.discoverhongkong.com/eng/plan-your-trip/practicalities/other-information/money.jsp#ixzz2ikOSqV4B which is pegged to the US dollar at a rate of about 7.80 HKD to 1 USDSource: http://www.discoverhongkong.com/eng/plan-your-trip/practicalities/other-information/money.jsp#ixzz2ikOSqV4B which is pegged to the US dollar at a rate of about 7.80 HKD to 1 USDSource: http://www.discoverhongkong.com/eng/plan-your-trip/practicalities/other-information/money.jsp#ixzz2ikOSqV4B which is pegged to the US dollar at a rate of about 7.80 HKD to 1 USDSource: http://www.discoverhongkong.com/eng/plan-your-trip/practicalities/other-information/money.jsp#ixzz2ikOSqV4B which is pegged to the US dollar at a rate of about 7.80 HKD to 1 USDSource: http://www.discoverhongkong.com/eng/plan-your-trip/practicalities/other-information/money.jsp#ixzz2ikOSqV4B which is pegged to the US dollar at a rate of about 7.80 HKD to...
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...Seminar Financial Risk Management 20011-2012 Erasmus University Testing the validity of Purchasing Power Parity: In time series and panel analysis using CPI, TPI and PPI. Supervisor: Everaert Gerdie Leonora Jean-Timothy Marsoufandis-Balomenos Nikolaos Venieris Michael February 10th, 2012 319006 356941 354890 Abstract The examination of the Purchasing power parity theory with reference to 22 (invluding the U.S) countries is the prime objective of the paper. Consumer price index (CPI), whole sale price/producer price index (PPI), traded price index (TPI) and nominal exchange rate are the variables which were investigated in this study for the period 1957Q1-1998Q4, on the basis of the mean reversion hypothesis. Engle-Granger co-integration and Unit root tests have been employed to both of variables and estimated residuals of the sample in order to test the purchasing power parity. Keywords: Purchasing Power Parity, unit-root and co-integration. Content 1. Introduction……………………………………………………………….….3 2. Literature review………………………………………………………….….4 3. Data……………………………………………………………………………7 4. Methodology………………………………………………………………….8 5. Empirical results………………………………………………………..…....11 5.1. 5.2. 5.3. 5.4. 5.5. Unit-root and cointegration results(CPI)……………………………....11 Unit-root and co-integration results(TPI)……………………………..15 Unit-root and co-integration results(PPI)……………………………..16 Half-life deviations from PPP…………………………………………..17 Forecast performance…………………………………………………...20 6....
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...1. INTRODUCTION The term “Exchange rate” is referred to as the value of the money of one country compared to the money of another country exchange rate movement is therefore the fluctuation in the value of a country’s currency when compared to another country at particular time period. The importance of foreign exchange rate on inflow of foreign private investment has been traced by Obadan (1994) who noted that its importance as the center pieces of the investment environment derives from the argument that a sustained exchange rate misalignment in terms of over-valuation or under-valuation is a major source of macro economics disequilibrium which spells danger for investment. A stable exchange rate encourages, foreign and local investor into such an economy. This is because, an over-valued exchange rate discourage export and negatively affect the foreign private investment Salako (2004). Further state that there is a long run equilibrium relationship between investment inflow to Nigeria and variables such as nominal effective exchange rate. A high foreign exchange rate increase the prices of goods and services and discourage exportation while at the sometime encourages importation of goods which are cheaper. This has negative effect on the investment and with such factors investors withdraw their money from such an economy (Solomon, 2012). It is therefore imperative to state that foreign exchange rate is a significant factor that determines investment in...
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...interest rate paid on deposits among banks in the Eurocurrency market is called LIBOR (London interbank offer rate). It’s the world most widely used benchmark for short term interest rates. LIBOR is determined by the supply and demand for funds in the Euromarket for each currency, because participating banks could default on their obligations and the rate paid for Eurodollar deposits in addition to the spread over LIBOR for borrowers. It also help to reduce the cost of using the Euromarket for borrowers. Eurocurrencies are domestic currencies of one country on deposit in a second country. Any convertible (exchangeable) currency can exist in “euro-“ form. Eurocurrency markets serve two valuable purposes: These deposits are an efficient and convenient money market device for holding excess corporate liquidity; This market is a major source of short-term bank loans to finance corporate working capital needs. * The modern Eurocurrency market was born shortly after WW II. Eastern European holders of dollars, including state trading banks in the Soviet Union, were afraid deposit their dollar holdings in the US because they felt claims could be made against these deposits by US residents. These currency holders then decided to deposit their dollars in western Europe. While economic efficiencies helped spurn the growth of this market, institutional events were also important. * -Eurocurrency interest rate is the LIBOR: in the Eurocurrency market the reference rate of interest...
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