...The Indian Rupee Crisis Economics Essay-1 In this paper we are going to examine the cause and the impact of rupee depreciation on the Indian economy. Since last few months Indian rupee came under great stress as overseas investors are paring their exposure to Asia’s third-largest economy amid international uncertainty and mounting worries over the domestic economy. In 2009 – 2010 the exchange rate was hovering around the 43 – 45 rupees per US Dollar level. And now it is around 55 – 56 levels, the main reasons to examine are increase in import bill, higher inflation, fiscal mismanagement and all resulting in higher cost of borrowing. The rupee has lost more than 15% of its value this year, making it one of the worst performing currencies in Asia. This paper reviews the probable reasons for this depreciation of the rupee and the outlook for the same. It also reflects on the policy options to help prevent the depreciation of the Rupee. This paper will firstly discuss about the economy of currency to give an overview of the problem and the factors related to it. Afterwards it will be examining the causes of the Indian rupee depreciation with respect to the Indian economy and the global economy. And after that it will analyse the impact of the same on trade and business. Finally, recommending the policy actions in response of the falling currency. II. LITERATURE REVIEW: These papers include the work which have been used as a basis or reference for formulating the policies regarding...
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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 After the huge resurgence of interest in Purchasing Power Parity in 1982, an increasing number of economists started using new econometric methods, such as cointegration and non-stationary panel methods, to test PPP. Rogoff (1996) had introduced the so-called PPP puzzle in his paper, which concerns the question that ‘how is it possible to reconcile the extremely high short-term volatility of real exchange rates with the glacial rate (15 percent per year) at which deviations from PPP seem to die out?’ (Rogoff, 1996, p. 664). To solve the PPP puzzle, numerous explanations arose including the core of this essay, Pricing to Market. The objective of this essay is threefold: (i) to explore and review the concept of Pricing to Market (PTM), (ii) to illustrate the implications of PTM for Purchasing Power Parity, and (iii) to analyse the empirical evidence of PTM. Initially, I will start with an overview of the concept of PTM in the first part of this essay, then go on to interpret the implications of PTM for the PPP hypothesis in the following paragraph and cover the empirical evidence concerning Pricing to Market in the last section. Main body Pricing to Market as a concept was first introduced by Krugman in 1987 to characterise the phenomenon of imported goods’ prices staying the same or even increasing when the domestic currency appreciates. In other words, it implies that producers are capable of price discriminating among different international markets (Knetter...
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...World Economics – Outcome 2 Dionne Rendall Question 7 The UK balance of payments are made up of; * The financial account balance * The capital account balance * The current account balance The financial account balance takes account of the sale of assets and purchase of them, i.e. loans, property, bank deposits and cross-border exchanges. In relation to the capital account balance it consists of the monetary values relating to the transfer of ownership of things such as land, and records the outflows and inflows from people that are selling abroad and purchasing. The current account balance is made up of the balance of trade in goods, the balance of trade in services and the income balance and the current transfer balance. Collectively they show the money spent by a country on exports and the amount they have spent on imports, in regards to the UK they are exporters and importers of holidays and education. Question 8 Looking at the current balance from 1980 to 1920, it is clear that the UK has had a significant increase in the value of goods they have been able to export which enables them to be seen as a large contributor to the market. Due to the Global Financial Crisis of 2007-2008 this accounts for the lowest figure to date for the UK’s balance of trade in goods and services of -£36,733. There has been an increase of 859.6% between 1997 and 2012 of the quantity of oil imported to the UK, as oil is a necessary fossil fuel it is a necessary purchase...
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...sought to apply price theory to explain the aggregate exports and imports and they viewed the exchange rate as the relative price of commodities traded internationally. However, because of the advent of the development of national accounts they started to treat the trade balance as a component of the national account, not only domestic account. They applied the Keynes’s writings to explain the balance of payment, which became an integral part of the theory that explains the dynamics of adjustments in the stock of money and overall trade balance. This approach uses IS-LM-BP framework to explain the changes that will occur in an economy as an effect of using monetary or fiscal policy, and how those changes will differ when the country operates under different capital mobilities and under floating or fixed exchange rates. One of the three components of this model, the IS curve, shows all of the possible combinations of income and the interest rates in the goods market. The LM curve relates to the interest rates and output on the money market. The BP curve is a line drawn on an IS-LM curve, which shows the different combinations of real income and interest rates at which the balance of payments is in equilibrium. The slope of the BP line indicates the degree of capital mobility in a country in a way that- the flatter the BP curve, the greater the capital mobility. The aim of this essay is to use this model in order to...
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...(iv) Your country is in a recession. You feel that a policy of exchange rate depreciation will stimulate aggregate demand and bring the country out of the recession. This essay examines the effectiveness of using exchange rate depreciation to stimulate aggregate demand in order to bring a fictional country, Australand, out of recession. It will explain how a policy of exchange rate depreciation can increase aggregate demand and how this will stimulate economic activity and bring Australand out of recession. The process of depreciating the currency will be explained as well as possible ramifications of this policy. Alternative options to increase aggregate demand will also be explored. A recession is technically when an economy has experienced two successive quarters of negative gross domestic product (GDP) growth. For this to happen the total amount of goods and services produced by a country must contract on a quarter by quarter basis for six months or more. (http://news.bbc.co.uk/2/hi/business/7495340.stm) It therefore stands to reason that by increasing the total amount of goods and services Australand produces, known as aggregate output, will bring Australand out of recession. Blanchard and Sheen (2009 p39) state that in the short run the main determinent of aggregate output is demand and that changes in demand can lead to an increase in output. Aggregate demand is the total quantity demanded for output at a given price level and it is therefore necessary to...
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...ACC 321 Reflection Essay After I take ACC 221 and ACC 222, this semester I decide to take ACC 321. The name of the class is intermediate financial accounting. Before I took the class, I heard the class is the most difficult class among accounting class because of there is a lot of materials to cover in very short time. There are around 15 chapters to cover in a semester so that we have to learn a chapter in a week because we have to use some classes to take the exams and quizzes. And if I want to learn this course well and get a good grade as what I did in ACC221 and ACC222. I will have to read the book, listen to the teacher carefully, do the quiz well, prepare for the exam well and finish all the homework online. It is very important to study the ungraded homework as well because there are more questions to practice, more different kinds of problems to solve, different essay questions and more challenging question to practice. In chapter 1, we learned the differences between GAAP (General Accepted Accounting Principal) and IASB (International Accounting Standard Board). GAAP is the principal that America is using and IASB is the standard that Europe and some other countries are using. AICPA is America Institute of Certified Public Accountant. CPA is Certified Public Accountant. FASB is Financial Accounting Standard Board. SEC is the Securities and Exchange Commissions. In chapter 2, we learn the qualitative characteristics of accounting information like Relevance (Predictable...
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...Consequently, currency devaluation is a considerable option to improve the status quo. Devaluation is viewed as a method of improving a country's "competitiveness", or in other words rendering domestically produces goods more attractive abroad while making foreign produced goods less attractive at home (Miles 1978, introduction 2). Supply-and-demand forces determine the exchange value of a currency in exchange markets which are fundamentally the result of the debit and credit items in the balance of payments (Gilbert 1979, 112). Historically, an issuing authority who certified the weight and purity of the precious metal published the early currencies--coins. A government in need of short on precious metal might abruptly lower the weight and purity of coins to devaluate the currency (from Wikipedia). After the Second World War, currency devaluation is a means as a counter-economic crisis and stimulates the development of economic in many countries. When a country face the balance of payments deficit, the strategy of local currency devaluation can be changed previous condition through the decrease of the currency exchange rate, which seems an advisable way to reduce the deviation of prices and to resume the contribution margin ration of exports commodities. Earlier devaluations are characterized by weak fundamentals, while recent ones are in large part explained by high short-term debt burdens (Huang 2001). There are three main reasons to show that currency devaluation is an advantage for...
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...ACC 563 Quizzes and Exams – Perfect Score Guaranteed Follow the link below to purchase Solutions http://www.hwmojo.com/products/acc563-quizzes-and-exams We have all assignments, Cases and Exams for ACC 563 and many other classes. Email us support@hwmojo.com All Quizzes, Midterm Exam, Final Exam Solution Instant Download Chapter 1 Multiple Choice: 1. Which of the following bodies has the ultimate authority to issue accounting pronouncements in the United States? a. Securities and Exchange Commission b. Financial Accounting Standards Board c. International Accounting Standards Committee d. Internal Revenue Service Answer 2. What historical evidence of the business operations of the private estate of Apollonius was discovered early inthe20th century? a. The Iliad b. Plato's Republic c. The Zenon papyri d. Pacioli’s work, Summa de Arithmetica Geometria Proportioni et Proportionalita, Answer 3. Who has been given credit or developing the double-entry system of bookkeeping? a. Francis Wheat b. Fra Luca Pacioli c. A. C. Littleton d. William Paton Answer 4. Which of the following was not a criticism of the development of accounting standards by the Accounting Principles Board? a. The independence of the members of the APB. The individuals serving on the board had full-time responsibilities elsewhere that might influence their views of certain issues. b. The structure of the board. The largest eight public accounting firms...
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...proclaimed necessary to maintain order and progress. However, economists and the rest of the world did not see the breaches in the economy and realize the affect those considerations would have in the exacerbation of an entire region. The purpose of this essay is to explain what the Asian Economic Crisis was, the causes, consequences, and how the world went about resolving the issue to bring this region to where it is today. The 1990s was a decade of enormous growth in Southeast Asia sustained by its exporting (Noble, 1). It was commonly known as the Asian economic miracle. Macroeconomic balances were relatively steady and inflation was under control in these Asian countries, like Thailand, Indonesia and Singapore. Because of the major progress and developments in these countries, it became an attractive location for foreign investment. Technology had reached a new brink, where people could invest internationally without having to leave the country and establish a huge investment abroad. Trading through the internet was easy, efficient and convenient. Capital Inflow into these countries was inundating the banks and several sectors of these countries in a way they never saw before. For the investors it was beneficial because their rate of return was nearly ten to twenty times higher than what they would get by investing in the domestic market (Noble, 8). For the Southeast Asian countries, it was wonderful because it gave them the capital to develop their countries and have the...
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...exchange rate determination “Having endeavored to forecast exchange rates for more than half a century, I have understandably developed significant humility about my ability in this area…”[1] - Alan Greenspan Figure 1: Exchange Rate Determination [pic] Source: Exchange Rate Determination I. Short-Run Forecasting Tools Short-term changes in exchange rates are the most difficult to predict and are often determined based on bandwagon effects, overreaction to news, speculation, and technical analysis.[2] Trend-Following Behavior is the tendency for the market to follow a trend. In other words an increase in the exchange rate is more likely to be followed by another increase. Investor Sentiment is based on the consensus of the market. For example if the market is bullish on the dollar, then the dollar is likely to strengthen versus other currencies. The FX market is quite different from the world equity markets in one important aspect: transparency. In equity markets, rules ensure that volume and price data are readily available to all parties… this is NOT the case in FX markets. In fact large FX dealers are able to observe factors such as: shifts in risk appetite, liquidity needs, hedging demands, and institutional rebalancing.[3] Order Flow - there is evidence of a positive correlation between spot exchange rate movements and order flows in the inter-dealer market[4] and with movements in customer order flows.[5] Three explanations for the cause...
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...ECON101 ESSAY -Foreign exchange -AE questions -Demand pull/Cost push Fiscal or Monitory policy - Money market (Demand/Supply) (Definition of Economics) Scarcity refers to the situation where resources (like labor and time) are limited but the wants are unlimited. (GDP) - GDP DEFINED GDP or gross domestic product is the market value of all final goods and services produced in a country in a given time period. - Final Goods and Services GDP is the value of the final goods and services produced. A final good (or service) is an item bought by its final user during a specified time period. Real GDP per capita = Real GDP/Population (Real GDP Fluctuations ) A business cycle is a periodic but irregular up-and-down movement of total production and other measures of economic activity. Every cycle has two phases: 1 Expansion 2 Recession and two turning points: 1 Peak 2 Trough (List 4) Factors not in GDP that influence the standard of living are * Household production * Underground economic activity * Health and life expectancy * Leisure time * Environmental quality * Political freedom and social justice (Fixed Prices and Expenditure Plans) Disposable income is either spent on consumption goods and services, C, or saved, S. That is, Yd = C + S (MARGINAL PROPENSITY TO CONSUME) It is calculated as the change in consumption expenditure, △C, divided by the change in disposable income...
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...Comparing IFRS to GAAP Essay In the Accounting industry, there are various principles and guidelines by which financial accountants, analysts, and organizations need to abide by. The International Accounting Standards Board (IASB) issues standards (IFRS) that have been adopted by the United States and several countries outside of the U.S. (University of Phoenix, 2013). The IFRS along with Generally Accepted Accounting Principles (GAAP), professionals in the accounting industry use these guidelines as a baseline on which accounting practices are built upon. These standards are governed by the Securities and Exchange Commission (SEC) which ultimately oversees U.S. financial markets and accounting standard-setting bodies. Moving forward, the elements of IFRS and GAAP will be discussed to illustrate the similarities and differences and how it relates to Accounting and used in business practice. IFRS 8-1: Fair-Value Measurement Fair value measurements provide users of financial statements with an accurate picture of the value of a company’s assets. Both IFRS and GAAP require firms to include information regarding fair value measurements practices in the notes of financial statements. Under either system, companies will be required to report assets at either book value or fair value, depending on the situation. As a general rule of thumb, all assets in the same class must receive the same valuation treatment. In regards to the value of receivables, IFRS uses a two-tiered method...
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...College Number(Bottom Left of College Card) | 100724676 | Year: | 3 | Course Code | MN3245 | Course Tutor: | Professor Christopher Napier1 | Assignment No.: | 1 | Degree Title: | Management with Accounting | Question No. & Title: | Fair Value Accounting Standard | Candidate Number: 1401240 Fair Value Accounting International Accounting Standard Board defines Fair Value and it gives a guide on how to measure it in the IFRS13 section. Fair Value is “ the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measure date”. (Financial Accounting Series, 2006) In IFRS13 dictate the measurement, which is market value, meaning assets and liabilities should be adjusted to a value which reflect the actual market value. On the fair value basis, balance sheet provides timely and reliable information as compared to other measurement basis like historical cost. Similar to historical cost fair value accounting method also ignore the transaction cost and only consider the asset itself. (Financial Instrument Working Group, 2007) According to IFRS13 fair value price is an exit price not an entry price. Exit price means the price for an assets or liability which is different from the contractually transaction price or entry price. The main objective of fair value measurement of exit price applies to all assets regardless the company intended to use or sell the asset. (Fair Value...
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...cost, availability of resources, technology and political stability.” Since 1970s FDI inflows increased in Malaysia reaching its peak around the 1990s and since then fluctuating and recently experiencing outflows of foreign funds. (TheGlobalEconomy, 2016). The objective of this essay is to discuss factors influencing a decrease in FDI in Malaysia. Slow economic growth is one of the factors that have affected FDI in Malaysia. According to Hill, Cronk & Wickramasekera (2013), “Economic growth is an increase in the productive capacity and national output of a country, measured by the rate of increase of GDP”. China being Malaysia’s second biggest export market after Singapore has a direct impact on the Malaysian economy. (Hui, 2014). Because of a lower economic growth in China, demand for Malaysian goods and services have declined in the Chinese market. This resulted in a fall in the Malaysia’s trade balance of RM 4.2bil in December 2015. (Aruna, 2016). Export growth, identified as a major component of economic growth in Malaysia has eventually had an impact on the economy. (Lonik, 2006). A lower economic growth in host countries, in this case Malaysia, discourage investors to invest as the rates of returns is low and the time...
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