Thursday, May 16, 2019

MONEY and BNKING Essay Example | Topics and Well Written Essays - 1000 words

money and BNKING - Essay ExampleTrade deficit among other marrows makes a agricultural dismiss or export a lot of its currency to the foreign foodstuff, which may create shortage of the currency in the topical anaesthetic market. Cause of trade deficit may attribute to the practices of by foreign markets or countries overweight the cost of their export to the affected country and increasing cost of importing goods and services from the affected country. This bureau that the affected country volition have to spend a lot of its currency to export goods and services, and spend very little to import goods from the competitor country. From the analysis, it means that trade deficit literally increases supply of a countrys currency in the foreign market making the currency depreciate. This means that it unthinkable and practical difficult to maintain the value of local currency with negative balance of trade. For example, if supply of US dollar in the Euro market increases, the num ber of Euro required in acquire one dollar ordain decrease. When the number of Euro required in buying one unit of dollar decreases, the demand for dollar in the foreign Euro markets impart increase due to the low prices of dollar. This means that many foreigners in the European countries will be holding large quantities of dollars, as they will not be in demand for the American goods. This effect will result to decrease in the supply of dollar in American frugality and subsequent rise in demand for dollar in the same American economy. The general effect of such market trend on the American economy will sharp deflation as locals will be not be willing to spend the little dollars they have in their custody. Economic recessional occurs due to scarce supply of local currency in the local market, which affects demand among the local consumers. To coiffure the shortage, a country can resort to borrowing from foreign countries to spur its production and manufacturing activities. A c ountry can also review its market and monetary policies to attract foreign investors who be returning local currency lost to the foreign markets. The best way that countries exercise control over their value of their several(prenominal) currencies in the international market is through intervening the foreign exchange market. Foreign exchange market specialisedally deals with daily and periodical valuation of all international currencies depending on the international flow of the specific countrys currency. Intervening in such a market may mean that an interested country buy its own currency from the international exchange and create shortage of the same in the international market. A country can also intervene by selling its currency in the international market with aim of acquiring another currency with high value. In so doing, the buying country shields it domestic economy from any stinting shifts in the foreign market country. This kind of economic practice is common among th e developing countries but rare in the stable and industrialized countries. Industrialized countries do not like intervening in the foreign exchange market or various reasons. sensation of the reasons why industrialized countries do not intervene in the foreign exchange market relates to their positive statuses that makes them perform many manufacturing and production activities that earns them foreign income when exported. This means that they are always in situation of competition for the international market where they export their goods and services. Attempts by anyone of

No comments:

Post a Comment

Note: Only a member of this blog may post a comment.