Exchange rate volatility and its impact: Case of India and China
Exchange Rate
Exchange rate between two currencies is the rate at which one currency will be exchanged for another.
How to calculate exchange rate
Each country manages the value of its currency through varying mechanisms. The currency can either be free-floating or fixed.
1. Movable or Adjusted Peg System
A system of fixed exchange rates, but with a provision for the revaluation (usually devaluation) of a currency. E.g. Between 1994 and 2005, the Chinese Yuan renminbi (RMB) was pegged to the United States dollar at RMB 8.2768 to $1. 2. Free Floating System
In this system the exchange rate is allowed to vary against that of other currencies. It is
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As of now there are only four currencies with that status namely- US Dollar, The Euro, Pound and Yen. China has been actively building on its 2005 reforms under it want the Yuan to be given Special Drawing Rights from the International Monetary Fund. But for achieving this it has to do lot of work. The first step has to be providing more information regarding the currency. The recent devaluation of currency is being looked upon as one such measure to satisfy the tough requirements of IMF. But the IMF says there is still a long way for Yuan to be included in the esteemed group of currencies. If Yuan is able to do so it would be able to control the prices of exports at its own will and hence wouldn’t have to worry much about how the other reserve currencies fare. This would help the economy to stabilize and hence grow at the desired …show more content…
The Indian Stock Market saw the biggest decrease in a day of 1600 points after 2008.A weaker Chinese currency will make imports from China an attractive deal in a wobbly World Market.
India Should Be Worried
With the rise in Dollar demand globally, including India, rupee has weakened as exchange rate is a function of demand and supply. With the yuan depreciating further the risk of Chinese goods being dumped in the Indian market at a price lower than the cost will increase, thus increasing imports.
Our imports from China have jumped to $60 billion in 2014-15, while exports have plunged to $12 billion, thus creating a huge trade gap which will only tilt further with the devaluation of yuan.
The fall in rupee reflects the negative impact on the Indian economy because of China.
Falling of rupee is bad
• Firstly, we may have to pay more at the pump as India imports 80% of its oil requirement, and a weaker rupee would only lower the effect of falling crude oil prices globally. Costlier petrol would knock up prices of most goods and thus increase
The effects of a change in the exchange rate. After entering the US market through exporting the company faced challenges regarding the value of its currency. When the value of the Canadian dollar started to rise, its exchange rate changed. “The exchange rate is the value of one nation’s currency relative to the currencies of other countries” (BUS1201 Custom Text 2012, p.71).
Meaning that this would help the U.S. In producing a more stable operation of make paper money. Making the U.S. economy more stronger and could build the U.S.
Debra Rogers U.S. Diplomatic History Hist. 3306 CRN 21772 Dr. J. Parks The American Empire American Empire was written by Andrew J. Bacevich how seem to be an very intelligent book writer who attended and completed his schooling at West Point and late took interested in joining the United State army. Reading the book Bacevich talks about how he served in the Vietnam War, which at some point became very interesting to me. Bacevich gives me the impression that he is fully educated about the military.
However, people in china lost confidence in the currency due to inadequate reserves of bullion for paper notes, which created a rise in prices. The diminished value of paper money became one of the major reasons for the decline of the Yuan dynasty. Although paper money was introduced at different times and for different reasons, under mongol rule, the decline of both empires was partly due to the loss of confidence in paper
First and foremost, one must acknowledge the plainly visible fact that the Chinese economy has grown exponentially since the process of integration into the global economic system began. China 's comparative advantages, particularly in the labor sector, has transformed it into the second largest recipient of FDI in the world.1 Over the course of the last 20 years, exports have grown approximately 17.1 percent per year.2 This ultimate result of this investment and trade has been an overall growth rate 8 percent per annum,3 which would have been completely unattainable without the country 's engagement in globalization. Foreign investments have
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The formers countries exports will also be affected sooner or
For example, the sales of Apple products in US will decrease if there is a rise in the US. Because of this the purchasing power will also decrease. Hence the sales will be reduced. Hence, to reduce the rise effect, Apple has purchased itself foreign currency.
Equality, like fairness, is an important value in most societies. Irrespective of ideology, culture, and religion, people care about inequality. Widening inequality also has significant implications for growth and macroeconomic stability, it can concentrate political and decision making power in the hands of a few, lead to a suboptimal use of human resources, cause investment-reducing political and economic instability, and raise crisis risk. The economic and social fallout from the global financial crisis and the resultant headwinds to global growth and employment have heightened the attention to rising income inequality.