The first and foremost aim of the Central Bank is to maintain the inflation level to the minimum. The Quantitative Easing policy is differing and very inflationary since it uses money for both lending and keeping as reserves. Nevertheless the economic policy on the other hand states that the effect of inflation will be good when Quantitative Easing is used, when the economy goes down as it will encourage the economy as a whole initially. But it will create problems in the longer run as the effects of such a simulation will be an extreme challenge to deal with when the economy gradually recovers. Secondly, quantitative easing can lead to a fall in the interest rates in the short term and an increase in the rate of inflation in the longer run, hence causing an instability in the financial system as well as an increase in the interest rates, therefore it is essential for the central banks to keep the interest rates
Countries around the globe trade with each other. Foreign trade is beneficial to nations since it allows them to produce goods and dispose of some of them abroad in exchange for those foreign products demanded domestically. The dominant feature of international trade theory is the assumed superiority of free trade and non intervention. This paper tries to argue that government intervention in international trade may not always be harmful. It may prove to be ieal in most cases, depending upon the situation in hand.
The most efficient and effective method of forecasting is a mix of the above two, thereby know as Electic/Mix Approach (Morgan, 1981). Under this technique, the forecaster determines the value of currency using interest and inflation rates and then compares these rates with the prevailing spot rate. According to Graham (1973), mixed forecasting approach is the natural result of predicting exchange rates due to the lack of superior and single method of forecasting exchange rates. This method assigns “weighted values” to the results that are derived from other forecasting approaches. Due to its subjective nature, the success of the method depends on its interpretation by the forecaster.
The world’s major currencies (e.g. The Yen, Sterling pound, Euro, US dollar) have floated in value versus each other. The exchange rates all over the world for most countries are flexible. It makes trade between developing and developed countries manageable and profitable. When fixed, trade is expensive for most developing countries; with the current economic recession, flexibility is what the economy needs to make profitable
Macroprudential policy aims to manage financial stability through a much more targeted approach than monetary policy. Using monetary policy to fix a problem in the economy (e.g. asset prices are too high or too low) has many risks involved with it, for example causing high inflation or on the other hand causing deflation. Macroprudential policy takes a different approach and tries to correct imbalances in the economy more on a case-by-case basis instead of “shocking” the whole economy with monetary changes. So instead of trying to aid a housing bubble by raising interest rates and risking a rise in unemployment, a macroprudentialist will look to impose higher loan-to-value ratios on mortgage lendors, and will try to reign in just the housing part of the economy instead of affecting it as a whole (Z.G., 2014).
This may include exchange rates, interest rates, and commodity and equity prices. The effects of changes in these rates on reported earnings can be overwhelming, so companies will try to transactions whose sensitivity to movements in financial prices offsets the sensitivity of its core business of such changes or hedging. To recognize the most demanding players in this area that a company provide a powerful way to add their bottom line while shielding the company from the negative effects of these movements the financial risks Why Do Companies Do It? Companies try to price risk, since these fluctuations are risks periphery to the central business in which they
Inflation causes growth but not vice versa. This article also elaborated on the School of Thoughts, Structuralism View (inflation is a fundamental element of Economic Growth) and Monetarist View (inflation has an ability to determine economic progress). Monetarist View inflation has a positive effect on capital formation and capital information has positive relationship on economic growth. There is a negative relationship between countries like India, Pakistan, Bangladesh, and Sri Lanka. However the negative association between inflation and economic growth has been pointed out in some other countries.
If the minimum fraction of commercial bank borrowing is to be covered by reserves like gold, then the availability of reserves like gold must necessarily limit bank borrowing, and thereby its capacity to lend. Credit funded by non–reservable liabilities would not be so constrained. Under a currency board system (or the gold—or other specie—standard), reserve money creation is limited by the requirement that it solidly be backed by specified assets. The central bank purchase of foreign exchange or gold provides an external backing to reserve money; the acquisition of government securities may also provide support, but is closer to secured lending. If the reserve creation is constrained, a bigger reserve requirement would then necessarily bring about a reduction in credit, while a lower requirement would undoubtedly increase it.
Having knowledge on predicting forex rates truly helps the government in making policy decisions, people who are affected by foreign exchange risks, and families who are partly dependent on the remittances of their family member who works abroad. Mainly, forex rate greatly contributes to the global trade and investment by means of allowing transactions such as exchanging currency of an entity to a target currency in the determined forex rate. And also, Yu said, “it also provides the speculation and expedites the carry trade, in which there are substantial profits available. However, there also exists high risk in the speculation.” Usually, the random walk model is used in forecasting the forex rate. In spite of that, it has been argued that it is not consistent with respect to the theory behind forex rates (Becker & Wang, n.d.).
Some of the benefits of globalization are accessing to capital markets across the world enables a country to borrow during tough times and lend during good times, it promotes domestic investment and growth through capital import, worldwide cash flows can exert a corrective force against bad government policies, it prevents excessive domestic regulation through global financial institutions, international finance leads to healthy competition and, hence, a more effective banking system, it provides information on the vital areas of investments and leads to effective capital allocation and international finance promotes the integration of economies, facilitating the easy flow of capital. So what's the harm if the entire world is coming together on a common platform? Why are we even discussing whether globalization is good or bad for the world? As I said earlier, everything has a good side and a bad side. The bad side of globalization predominantly revolves around the fact that the preferences differ from nation to nation, and coming to a consensus on any issue becomes more difficult when too many nods are required.