...other countries savings to meet its local investment and consumption demands. In contrast, if a country has a negative capital and financial accounts, it will have a current account surplus - because the credit is more 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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...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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...to the Pound Sterling. Following the dismantlement of the Sterling Area in 1972, the ringgit was pegged to the US dollar. The ringgit was allowed to float in June 1973, and again pegged to a basket of major currencies in September 1975. Since then to the middle of the 1980s, the exchange rate policy of BNM had focused on the stabilization of the exchange rate against the Singapore dollar. After several speculative attacks, the ringgit was allowed to float more against both the Singapore dollar and the US dollar in the end of 1984. The exchange rate system since then can be classified into a managed floating system. This regime had lasted until July 1997, when BNM gave up to sustain the exchange rate in the wake of the Asian Crisis. Since September 2, 1998, the ringgit has been pegged to the US dollar at US$1.00=RM3.8010. History and development of exchange rate regime in Malaysia Ringgit Malaysia (RM) or Malaysian Dollar is known as the currency using by Malaysia, formally introduced in 12 June 1967. Prior of this date, Malaysia was under controlled and protected by the British, that time Malaysia are called Malaya and used the Malayan dollar as official currency. Malayan dollar also used by Singapore and Brunei on that period. On 12 June 1967, Ringgit Malaysia officially issued by the new central bank, known as Bank Negara Malaysia, replaced the Malaya and British Broneo dollar at...
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...International Financial Management EF 5143 Dr. Du Du Student Name and SID: Li Xing, 53680125 Lin Lin, 53834131 Chen Shu, 53684900 Zhang Rui, 95651546 Abstract The dollar- linked exchange rate system in HK was put into operation in 1983 and was always regarded as the footstone of stabilizing HK economy since then. However, 30 years later, great changes both inside and outside have taken place in Hong Kong. Now, a series of economic and social problems associated emerge with the Hong Kong's present exchange rate arrangement- linking HKD to USD. Is the dollar-linked exchange rate system still suitable for HK? Will the Hong Kong monetary authority have other better choices? In order to resolve the above questions, our report was divided into four main parts to analyze and discuss this issue. First, we discussed the reasons for choosing dollar- linked and also the disadvantages of linking HKD to USD that we assessed both in theory and fact. Then, we focused on the potential benefits of HKD linked with CNY before we analyzed the disadvantages. Later, we talked about a larger issue – dollarization and compared HK with Switzerland and Singapore before we came to our conclusions that HK should give up existed linking exchange rate system and adopt managed floating arrangement. Keywords: Linked exchange rate system, Hong Kong dollar, United State dollar, Chinese Yuan, Dollarization 1 Contents 1. 2. Background......................................................................
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...LECTURE: TRAN LINH DANG STUDENTS OF TC201DE01-0100 1. Phan Nguyễn Ngọc Xuân Mỹ 101537 2. Vũ Thị Hường 101574 3. Trương Linh Trang 101579 4. Nguyễn Đỗ Thiên Trang 093304 Note for faculty: Date: ___/___/___ For the writer: (Signature & full name) 2012 – 2013 CONTENTS CONTENTS i INTRODUCTION ii I. Exchange rates 1 I 1. Exchange rates 1 I 2. Exchange rate regimes 2 I 3. Roles of exchange rates 3 II. Compare and contrast between the value of VND and the others of ASEAN 5 II 1. The exchange rates in Vietnam from 2008 to 2010 6 II 2. The exchange rates in Vietnam in 2011 8 III. Impacts on exchange rates 10 III 1. Balance of Trade 10 III 2. Balance of Payments 11 III 3. Monetary Policy 12 III 4. Differentials in Inflation 12 III 5. Differentials in Interest Rates 12 III 6. Public Debt 12 III 7. Speculation 13 III 8. Employment Outlook 13 III 9. Political Stability and Economic Performance 13 IV. Adjusted policies of Vietnamese government on exchange rates 14 Recommendation a REFERENCES e INTRODUCTION Since Vietnam began to implement the open door policies and integrate into the world economy, Vietnamese trade has jumped by a so large amount, especially after...
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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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...accumulation * History of Foreign Exchange Reserves * Adequacy and Excess reserves * List of countries by Foreign Exchange Reserves * New Realities of Forex Reserves and Management * Conclusion * Reference SIGNIFICANCE OF FOREIGN EXCHANGE RESERVES Introduction Foreign-exchange reserves (also called forex reserves or FX reserves) are assets held by central banks and monetary authorities, usually in different reserve currencies, mostly the United States dollar, and to a lesser extent the euro, the United Kingdom pound sterling, and the Japanese yen, and used to back its liabilities, e.g., the local currency issued, and the various bank reserves deposited with the central bank, by the government or financial institutions. Deposits of a foreign currency held by a central bank. Holding the currencies of other countries as assets allow governments to keep their currencies stable and reduce the effect of economic shocks. The use of foreign exchange reserves became popular after the decline of the gold standard. Definition In a strict sense, foreign-exchange reserves should only include foreign currency deposits and bonds. However, the term in popular usage commonly also adds gold reserves, special drawing rights (SDRs), and International Monetary Fund (IMF) reserve positions. This broader figure is more readily available, but it is more accurately termed official international reserves or international reserves. Foreign Exchange reserves are called Reserve...
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...effects of the financial crisis and the appropriate and necessary responses at national and international level. My focus will be based on Singapore. Singapore has a very open economy both in current and capital accounts. The impact of financial crisis in Singapore have not been that severe due to the strong macroeconomic fundamentals, policies, healthy financial domestic system and political stability. With the increased globalization and rising international capital flows, the determination of an appropriate monetary policy by countries with small economies have become more complex. An example of this country is Singapore. The government of Singapore has been faced by the challenge of evaluating the different economic developments which are vital in the short run and also assessing the different trade-offs among policy objectives. Identification of the key constraints on the operating regime and assessing the necessary degree of monetary policy transparency has really been a problem to the government. Based on this context, Singapore has been trying to adopt a unique monetary framework centered on managing the rate of exchange and promoting price stability to ensure sustainable economic growth. The monetary policies in Singapore are enacted by the Monetary Authority of Singapore (MAS). This body has time to time tried to ensure that the Singapore dollar remains strong in relation to other currencies. MAS is responsible for the central banking functions except currency...
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...effects of the financial crisis and the appropriate and necessary responses at national and international level. My focus will be based on Singapore. Singapore has a very open economy both in current and capital accounts. The impact of financial crisis in Singapore have not been that severe due to the strong macroeconomic fundamentals, policies, healthy financial domestic system and political stability. With the increased globalization and rising international capital flows, the determination of an appropriate monetary policy by countries with small economies have become more complex. An example of this country is Singapore. The government of Singapore has been faced by the challenge of evaluating the different economic developments which are vital in the short run and also assessing the different trade-offs among policy objectives. Identification of the key constraints on the operating regime and assessing the necessary degree of monetary policy transparency has really been a problem to the government. Based on this context, Singapore has been trying to adopt a unique monetary framework centered on managing the rate of exchange and promoting price stability to ensure sustainable economic growth. The monetary policies in Singapore are enacted by the Monetary Authority of Singapore (MAS). This body has time to time tried to ensure that the Singapore dollar remains strong in relation to other currencies. MAS is responsible for the central banking functions except currency...
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...effects of the financial crisis and the appropriate and necessary responses at national and international level. My focus will be based on Singapore. Singapore has a very open economy both in current and capital accounts. The impact of financial crisis in Singapore have not been that severe due to the strong macroeconomic fundamentals, policies, healthy financial domestic system and political stability. With the increased globalization and rising international capital flows, the determination of an appropriate monetary policy by countries with small economies have become more complex. An example of this country is Singapore. The government of Singapore has been faced by the challenge of evaluating the different economic developments which are vital in the short run and also assessing the different trade-offs among policy objectives. Identification of the key constraints on the operating regime and assessing the necessary degree of monetary policy transparency has really been a problem to the government. Based on this context, Singapore has been trying to adopt a unique monetary framework centered on managing the rate of exchange and promoting price stability to ensure sustainable economic growth. The monetary policies in Singapore are enacted by the Monetary Authority of Singapore (MAS). This body has time to time tried to ensure that the Singapore dollar remains strong in relation to other currencies. MAS is responsible for the central banking functions except currency...
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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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...liquidity abundance and downward pressures on real world interest rates. These resulted from mercantilist trade policies and an unprecedented increase in savings and foreign reserves of emerging economies in Asia. This essay will first explain the Mundell-Fleming (henceforth M-F) model and use it to compare current account deficits under different exchange rate regimes. It will also refer to real-life contexts and discuss limitations of the model. The M-F model portrays the short-run Keynesian relationship between an economy’s key macroeconomic variables. The assumptions and implications of the model are as follows: 1. The economy operates on a perfectly elastic aggregate supply curve. This implies that the level of economic activity, Y, is solely dependent on fluctuations in aggregate demand, as per the IS-LM framework. As prices are fixed, P is normalised to 1 and M represents both real and nominal money stocks. 2. The current account (CA) is determined independently of the capital account. PPP does not hold. CA deficits, as we will later see, depends on Y and the nominal and real exchange rate, e. The higher Y is, the greater the demand for imports; and the lower e is, the more uncompetitive domestic exports will be. The combined effect, based on the Marshall-Lerner (M-L) condition, results in a CA deficit. 3. Static exchange rate expectations and central role of interest rates. International interest rate differentials are assumed to result in finite capital inflows...
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...INTRODUCTION: FOREX — the foreign exchange market or currency market or Forex is the market where one currency is traded for another. It is one of the largest markets in the world. Some of the participants in this market are simply seeking to exchange a foreign currency for their own, like multinational corporations which must pay wages and other expenses in different nations than they sell products in. However, a large part of the market is made up of currency traders, who speculate on movements in exchange rates, much like others would speculate on movements of stock prices. Currency traders try to take advantage of even small fluctuations in exchange rates. In the foreign exchange market there is little or no 'inside information'. Exchange rate fluctuations are usually caused by actual monetary flows as well as anticipations on global macroeconomic conditions. Significant news is released publicly so, at least in theory, everyone in the world receives the same news at the same time. Currencies are traded against one another. Each pair of currencies thus constitutes an individual product and is traditionally noted XXX/YYY, where YYY is the ISO 4217 international three-letter code of the currency into which the price of one unit of XXX currency is expressed. For example, INR/USD is the price of the Indian rupees expressed in US dollars, as in Rs 1 = 0.0015 $. Foreign exchange reserves usually stores foreign currency and bonds held by the central banks of nations...
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...Name Institution Instructor Date Singapore Microeconomic Summary Fifty years ago Singapore was known to be among the most underdeveloped countries with a GDP of less than US$ 320. Currently, the country is one the fastest growing economies with a GDP of US$ 60,000 making it among the richest economies in the world (Bhaskaran 200). It is for the fastest growth of Singapore economy that this paper looks at its microeconomic status from the year 2009. Singapore, officially known as Republic of Singapore is an island country and a sovereign city-state in southern Asia. It lies on the southern peninsula and is 137 kilometers north of equator.Singapore is one of the world's major commercial hubs, with the fourth largest financial centre and one of the busiest ports in the world. The country’s population is 5,469,700 people where 61% of the individuals are citizen while the remaining 39% are permanent residents or foreign students. According to Bhaskaran (211) the majority of the people (51%) in Singapore are aged between 24-51years old. The monetary policy of Singapore has been centered on the management of exchange rate since early 1980s.This is because the primary objective was to promote medium term cost stability as a basis for sustainable economic growth in the country. The selection of the monetary policy regime is predicated on the small and open nature of the Singapore economy. Since 2009, Singapore has a highly developed economy, based historically on extended and...
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...DEVELOPMENT OF DERIVATIVE MARKETS IN EMERGING MARKET COUNTRIES1 A. Background Derivatives are commonly used for managing various risk exposures, including foreign exchange, interest rate, and credit risks. By allowing investors to unbundle and transfer these risks, derivatives contribute to a more efficient allocation of capital, in many cases reduce market and portfolio volatility, facilitate cross-border capital flows, and create more opportunities for portfolio diversification. Despite rapid growth over the past several years, Emerging Market (EM) derivatives account for only about 10 percent of the total outstanding notional values in global derivatives markets. Compared to mature markets, the ratio of outstanding notional value of derivatives to market capitalization of the underlying asset markets is fairly small in most emerging economies and is mainly focused on sovereign risks. The most common issues that challenge the development of local derivatives markets are (i) relatively underdeveloped markets for the underlying assets; (ii) lack of adequate regulatory, legal and market infrastructure, and (iii) restrictions on the use of derivatives by local and foreign entities.2 The problem of misuse of derivatives is perceived to be more acute in emerging market countries where prudential regulation, credit information infrastructure, and risk management practices are not fully developed and maybe in conflict with reasonable economic, investment or portfolio objectives. This...
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