...The Foreign Exchange Market Before the times of the foreign exchange market, the world depended on the gold standard to determine the value of goods and services. This paper will describe in more detail the gold standard, the positive and negative aspects of using the gold standard and in addition the paper will summarize the major functions of the world’s major foreign exchange markets. The gold standard was a monetary system that many countries used in order to determine the value of domestic currencies in relation to a specific amount of gold. The value of money, bank deposit and notes were transformed into gold at the specific amount. Britain was the first country to adopt the gold standard in 1816, followed by the United States. From 1834 until 1933 the specified price of gold in the United States was $20.67 per ounce (Bordo, 2002). However, in 1933 U.S. President Franklin D. Roosevelt put an end to the gold standard when he prohibited the possession of gold by any persons except for the purposes of owning or manufacturing jewelry (Moffatt, 2008). This was the beginning of the Bretton Woods System. Under the Bretton Woods System, countries agreed to settle their international balances by converting deficits into U.S. dollars at a flat exchange rate of $35 per ounce (Bordo, 2002). This monetary system only lasted until 1971 when President Richard Nixon completely ended the trading of gold (Moffatt, 2008). Since that time the gold standard has not been used by any major...
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...6 Factors That Influence Exchange Rates Изображение Стр. 1 Home Videos Dictionary Acronyms Bonds Buzzwords FOREX Mutual Funds Options & Futures Retirement Stocks Taxes Tech Analysis Trading Articles Stock Analysis Special Features Investing Basics Stocks Mutual Funds FOREX ETFs Active Trading Bonds Financial Theory Fundamental Analysis Options & Futures Personal Finance Real Estate & Mortgages Retirement FAQs View All Tutorials Special Features Beginners Experienced Investors Active Traders Retirement Exam Prep Quizzes CFA Level I CFA Level II CFA Level III Series 6 Series 7 Series 26 Series 63 Series 65 Series 66 CSC More Exams... FXtrader Home Trade Now Challenges Login Simulator Home My Portfolio Trade Stock Games Resources http://www.investopedia.com/articles/basics/04/050704.asp 05.03.2011 1:09:20 6 Factors That Influence Exchange Rates Login Financial Edge Free Tools Stock Ideas Free Annual Reports Guides and Books Learn About Futures Mortgage Offers Financial Calculators Стр. 2 .omestopediaи е Страница, размещенная в публичном Интернет, запрашивает данные из вашей частной локальной сети. По соображениям безопасности автоматический доступ будет заблокирован, но вы можете его разрешить. Продолжить Всегда продолжать при запросе данных с данного сервера в мою закрытую локальную сеть enter keywords enter symbol Get Quote Предупреждени е Страница, размещенная в публичном Интернет, запрашивает данные из вашей частной локальной сети. По соображениям...
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...Study……………………………………… 7 7. Scope and Limitation of the Study………………………… 7 8. Research Methodology……………………………………. 7 II. Literature Review……………………………………………… 8-9 III. Discussion III.1. Interest rate versus exchange rate in Bank deposit……… 10 III.1.1 Appreciate US Dollar in Bank Deposit factor…10-11 III.1.2 Depreciate US Dollar in Bank Deposit factor….. 11 III.2. Interest rate affected in Stock market…………………... 11 III.2.1 Depreciate US Dollar in Stock Market………..11-12 III.2.2 Appreciate US Dollar in Stock Market..................12 IV. Conclusion……………………………………………………… 13 V. References…………………………………………………….14-15 Abstract In this paper, I use high frequency data to investigate the extent to which interest rate changes originated in the United States by the Reserve Federal Fund. More specifically, I am interested in understanding in effects of changes in the Federal Reserve Fund’s interest rates on differential between (short term) local currency interest rates. I also investigate how interest rate influences to the foreign exchange market when Federal set the interest rate. The result indicates that Federal Reserve’s rate can influence foreign exchange market in the bank deposit factor and in the stock market. Key words: U.S Federal Reserve, Federal Fund rate, Interest rate and foreign exchange market. ACKNOWLEDGMENTS First of all, I have been blessed with the help of some wonderful people while preparing this term paper. Thanks must first given to Dr. CHHUN Vannak...
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...Abstract INTRODUCTION When first looking at an exchange rates, and foreign exchange, there are a few questions which must be considered. What factors affect the demand and supply of Australian dollars in the foreign exchange markets? Distinguish between the possible causes and effects of currency depreciation and a currency appreciation on the Australian economy. What forces have come into play, if any, in the past few years that have affected the value of the Australian dollar? In addition to looking further into those questions, it is helpful to know what the word Exchange Rate means; it is defined as, “The rate at which one unit of domestic currency is exchanged for a given amount of foreign currency.” A BRIEF HISTORY OF THE AUSTRALIAN DOLLAR Until 1971, the Australian dollar (AUD) was “pegged” to the British pound. This meant that the AUD rose or fell in line with the pound. In 1971, the AUD became pegged to the US dollar instead. These currencies were fixed currencies, which meant that the Australian currency would only change value when a major world currency also changed. This system lasted only until 1974 when the AUD became pegged to a trade-weighted selection of other currencies. This was still a fixed currency. In 1976 this selection of currencies became moveable. Small shifts were able to take place when needed. In 1983 the AUD became a floating currency. This means that the value of the dollar is determined by supply and demand. Initially, the Reserve...
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...The Australian Exchange Rate Abstract INTRODUCTION When first looking at an exchange rates, and foreign exchange, there are a few questions which must be considered. What factors affect the demand and supply of Australian dollars in the foreign exchange markets? Distinguish between the possible causes and effects of currency depreciation and a currency appreciation on the Australian economy. What forces have come into play, if any, in the past few years that have affected the value of the Australian dollar? In addition to looking further into those questions, it is helpful to know what the word Exchange Rate means; it is defined as, “The rate at which one unit of domestic currency is exchanged for a given amount of foreign currency.” A BRIEF HISTORY OF THE AUSTRALIAN DOLLAR Until 1971, the Australian dollar (AUD) was “pegged” to the British pound. This meant that the AUD rose or fell in line with the pound. In 1971, the AUD became pegged to the US dollar instead. These currencies were fixed currencies, which meant that the Australian currency would only change value when a major world currency also changed. This system lasted only until 1974 when the AUD became pegged to a trade-weighted selection of other currencies. This was still a fixed currency. In 1976 this selection of currencies became moveable. Small shifts were able to take place when needed. In 1983 the AUD became a floating currency. This means that the value of the dollar is determined by supply...
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... Other countries abandon their own currencies in order to protect themselves from possible devaluation and inflation as well as reduce a number of risks they might have when it comes to foreign investments. Thus, by abandoning their own currency and using the U.S. dollar they are able to provide a more stable and secure economic and investment climate for their country. Also, by doing this, it helps that country's economic climate become more credible and it helps to encourage both local and foreign investors to invest money into that country and their capital market again 2. According to the text, freely floating exchange rate policy means that a country allows market forces to determine the value of its currency. I believe that this policy exist only on paper. Why do you think this is the case? 5 points. I think this is the case too because in some instances, if a currency value moves in any one direction at a rapid and continuous rate, governments who are represented by their central banks are able to and will intervene by buying and selling its own currency reserves in the foreign-exchange market in order to stabilize the local currency. Thus, in reality this policy really only exists on paper because central banks slightly still have the ability to intervene in the foreign exchange market under this policy if needed. 1. Explain why another country would abandon its own currency and use the U.S. dollar as its official currency instead. Explain why such a policy will...
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...carries certain risks and undertaking an investment in a foreign market compounds these risks. Even after all projections and ratios provide positive feedback some serious concerns remain. There is always the uncertainty of knowing how competitors will respond; if the project can remain within budgeted projections; or if sales growth will meet projected estimates (University of Phoenix, 2007). In addition to these standard risks, investors in foreign markets are concerned with the differences in changing exchange rates, political and ethical influences and tax expenses. The Currency Exchange The currency exchange market fluctuates similar to that of stocks and bonds. When a company wants to purchase or invest into a foreign market it is first determined what one unit of the investors currency is equal to in one unit of the foreign currency. A market’s currency value is influenced by high or low activity, supply and demand and other economic influences (University of Phoenix, 2007). Seeing a gain in the foreign market does not necessarily mean that the gain will be realized in the home currency if the foreign currency has depreciated against the home currency(University of Phoenix, 2007). The currency exchange rate is of concern to investors, but, with strategic planning can be managed. An investing firm should limit the amount of times currency is changed back and forth. This limits the exchange rate effect. Another effective method would be to deposit...
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...ECO 550 Week 3 Discussion Questions Week 3 DQ 1 "Managing in the Global Economy" Please respond to the following: * *Answer the following discussions based on the Katrina’s Candies scenario: * From the scenario for Katrina’s Candies, assuming the absence of quantitative data, determine the qualitative forecasting techniques that could be used within this scenario. * Now, assume you have acquired some time series data that would enable you to make short, medium, and long term forecasts. Ascertain the quantitative technique that will provide you with the most accurate forecast. Provide a rationale for your responses. Answer: From the scenario for Katrina’s Candies, assuming the absence of quantitative data, determine the qualitative forecasting techniques that could be used within this scenario. Quantitative data are anything that can be expressed as a number, or quantified. Examples of quantitative data are scores on achievement tests, number of hours of study, or weight of a subject. These data may be represented by ordinal, interval or ratio scales and lend themselves to most statistical manipulation. Qualitative data cannot be expressed as a number. Data that represent nominal scales such as gender, socieo economic status, and religious preference are usually considered to be qualitative data. Both types of data are valid types of measurement, and both are used in education journals. Only quantitative data can be analyzed statistically, and thus...
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...1.0 Question a Explain sovereign risk. Broadly defined, sovereign risk refers to the risk that a host government or sovereign power will default on its payment obligations. For example, a host government or sovereign power may unilaterally repudiate its foreign obligations or many prevent local firms from honouring their foreign obligations. Sovereign risk reflects potential adverse effects resulting from a country’s political conditions. In other words, sovereign risk reflects the possibility that political conditions could prevent the counterparty in a swap agreement from meeting its payment obligations. Various political conditions could prevent the counterparty from meeting its obligation in the swap agreement. For example, the local government might take over the counterparty and then decide not to meet its payment obligations. Alternatively, the government might impose foreign exchange controls that prohibit the counterparty from making its payments. Sovereign risk differs from credit risk because it is dependent on the financial status of the government rather than the counterparty itself. A counterparty could have very low credit risk but conceivably be perceived as having high sovereign risk because of its government. It does not have control over some restrictions that are imposed by its government. Comment on the most common indicator of sovereign risk with current examples. Spain's Government Bond Yield for 10 Year Notes rallied 58 basis points during the last...
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...efficiently. Importing and exporting of resources is vital to the economy. A gain from International trading is a price increase or decrease, in the local markets. If it is cheaper to make a good and export the good the importer will gain from trade by getting a good at a better price than what the opportunity cost of it would be. If the market price was higher, a lower price exporter will allow market price to fall and pose a benefit for consumers, in the sense that everyone gains the most with minimal losses in the short run. Four Key Points Emphasized in the Simulation Within the simulation team b has identified four key points that were underlined. First there is what is called dumping. Dumping is the selling of goods and products in other countries at a cost that is lower than the cost of those goods and products in its own country. Another key point identified in the simulation was consumer surplus. Consumer surplus is the variation between what a consumer would be prepared to pay and what they actually pay for each unit of a product. If the demand for a product is high then the consumer may be willing to pay a higher price that is set by the producer the producer. There was also what is referred to as deadweight loss. Deadweight loss is the loss of...
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...for baht in order to strengthen the currency. This action would increase the demand for baht and the supply of dollars for sale, which puts upward pressure on the baht. In indirect intervention, a central bank attempts to influence the value of a currency by influencing the factors that determine it. For example, if the Thai government wanted to strengthen the baht, it could have increased interest rates by decreasing the Thai money supply. 2. Did the intervention by the Thai government constitute sterilized or nonsterilized intervention? What is the difference between the two types of intervention? Which type do you think would be more effective in increasing the value of the baht? Why? The intervention by the Thai government constituted nonsterilized intervention. In using a nonsterilized intervention, a central bank intervenes in the foreign exchange market without adjusting for the change in money supply. Using sterilized intervention, a central bank intervenes in the foreign exchange market while retaining the money supply. Since the Thai government exchanged dollar reserves for baht in the foreign exchange market, the dollar money supply is increased. An increase in the money supply may decrease U.S. interest rates, which may additionally weaken the dollar with respect to the baht. In this case, the nonsterilized intervention may compound the desired effects of the intervention effort. This would also be the most effective choice if it...
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...Globally Shirley Leo Argosy University This discussion will include the definition and how it is used to determine the demand for labor. The factors used to determine the supply of labor market will be discussed. This will include the factors that have changed the supply of labor market over the last twenty years. Price and quantity of labor determination over a period of will be explained. Income inequalities will also be determined, if there are any. The way that income inequalities are measured, and how they have changed from 1980 to the present will be discussed. What role does the government play in the terms of inequality? There will also reasons for this and against this provided. Next, nations trading will be discussed. The concept of “Comparative Advantage” will be discussed. If a nation had an isolation policy would they be better off economically will also be answered. Then the trade balance of the United States will be discussed. The problems with having a negative trade balance, and how it can be corrected will be included in this discussion. The last thing that will be discussed is the exchange rates. The significance of currency devaluations concerning the United States, as well as other countries will be the last thing discussed. Now, to discuss derived demand. Derived demand is the product that is produced by labor for a consumer...
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...Please respond to the following: • From the e-Activity, predict the performance of the DOW for the next two years. Provide support for your prediction. • Given your predictions, recommend whether or not a risk-adverse person should invest in the DOW index fund. Explain your rationale. Week 1 DQ 2 "Investment Decisions" Please respond to the following: • Analyze the factors that influence investment decisions at different stages in an investor’s life cycle, and make a recommendation at which stage the average investor should consider financial investments. Provide support for your recommendation. • Assess how cultural differences in foreign countries impact investor asset allocations. Week 2 DQ 1 "Globalization" Please respond to the following: • From the e-Activity, analyze how national exchanges around the world are linked and suggest which exchange most significantly impacts the U.S. markets. Explain your rationale. • Assess the factor(s) contributing to the global consolidation of stock, bonds, and derivative exchange. Predict the impact to these exchanges in the future. Week 2 DQ 2 "Efficient Markets" Please respond to the following: • Analyze the most significant driver in an efficient market and whether or not you would characterize the U.S. markets as efficient. Provide support for your position. • Discuss how behavioral finance concepts, such as bias, may impact investor decisions and the efficiency of financial markets...
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...International Trade Simulation and Report The advantage of international trade is countries with certain quantity, quality, and efficient production of goods and services can maximize their country’s wealth. Developing country’s increase sales and revenue through production expansion. International trade increases a country’s gross domestic product (GDP) by increasing the production of products sold to other countries. The free trade agreement between Rodamia, Uthania, and Suntize allowed each country to more efficiently use their resources to increase wealth through the comparative advantage of their export commodity. The flipside of international trade is another country’s ability to produce an export more efficiently than the importing country, causing domestic producers and firms to lose revenue or the opportunity for additional revenue. For example, if Rodamia continues a free trade agreement with Uthania for imports of corn, Rodamia misses the opportunity to become a large producer and net exporter of corn – hurting domestic producers and firms. To counteract the loss of increase revenue for domestic producers and firms, the Rodamia government can impose a tariff – place a tax on the corn or limit the amount of corn imported from Uthania – a quota. The government placing a tariff or quota on corn imported from Uthania protects domestic producers and firms from cheaper imports of corn and affords time to develop efficiency...
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...Least Squares (OLS) regression. The regression found that a higher US wage rate discourages FDI in insurance services. However, it also shows that FDI in manufacturing and insurance services complement each other. Thus, the foreign acquisition of US manufacturing assets may have contributed to the almost fourfold increase of FDI inflows in insurance services between 1987 and 1998. 1) Introduction Since the 1980s, many foreign firms have seen the US as a relatively attractive destination for direct investment. Foreign direct investment (FDI)1 allows investors to exert a significant influence on the host country. It creates a global marketplace in which firms from one country are operating another firm in a totally different environment. The US has undergone a major process of restructuring and deregulation that has encouraged this type of investment. In 1998, US FDI inflows accounted for 30% of worldwide FDI inflows (US $193 billion) with the second largest host country (the UK) a distant US$130 billion behind. The dot com bubble in the 90s spurred the nearly doubling of FDI levels in the US in 1998 as overseas firms were eager to tap into the expanding market. Most FDI growth was contributed by the large inflows of Mergers and Acquisitions (M&As). For example, new investment by foreign direct investors through M&As in the US accounted for 90 per cent of total investment expenditures in foreign affiliates in 1998 (UNCTAD,1999). The insurance sector in the US is a prime...
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