Fixed Exchange Rate In Yen

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Over the period of 2005 to 2010, the Japanese Yen has depreciated rapidly. In 2007, the Yen exchange rate was $ 70.61 to a US dollar. In 2009 to 2010 the rate was 80.57 and 85.67 to a dollar. To comprehend more in-depth what is occurring in the Japanese exchange market it is important to understand the meaning of exchange rate, fixed exchange rate and floating rate.
According to the Merriam- Webster Dictionary an exchange rate is defined as” a number that is used to calculate the difference in value between money from one country and money from another country. The exchange rate regime is the method experts use to manage its currency in relations to other currencies and the foreign exchange market. Two factor of this are fixed exchange rate
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The floating rate is used by countries like USA, Turkey, UK and Australia. Unlike the fixed exchange rate, floating exchange rate depends on the security of the country’s economy rather than government intervention. Arguments for and against Fixed Exchange Rate
The fixed rate regime in an economy occurs when the monetary value of a country is kept at certain level against that of another country. The fixed rate is useful when a country is in crisis circumstances to curtail the harshness of the exchange rate and the value of the currency. It is argument-um to say whether fixed exchange rate is good for the economy of a country or not.
The fixed exchange rate encourages a stable economy for investment. Stability in an economy creates a stable price, balance payment. It creates the right environment for employment, investors. Government implements this system as a mean of having a stable trading network. The prices are understood at a fixed rate for trading over a period of time so investors can be sure of the certainty that the rate would be the same as the year before, and this advantage allows growth into the economy. If export is more, this would facilitate growth in newer industries
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It is understood that inflation is an increased in the overall price of goods and services over a period of time in the economy. With the fixed exchange rate, the currency of a country is now pegged to another currency or value. The rate of inflation is determined by another country which the fixed rate country is tied to.
Moreover, the fixed rate does not remain permanently fixed, but for a period of time until the country disequilibrium is equalized through payments, then the rate can be changed.
However, the government uses the interest rate to regulate the currency’s value. This makes it difficult to implement any domestic economic policies. If government fixes the rate when it is high, there would be a deficit in trading due to the increased prices and if it is fixed and a low price there would be an over-consumption in demand. Hence, the fixed rate may not be agreeable with other economic goals for unemployment and inflation.
Furthermore, if countries have a deficit, monetary officials would deflate the economy to remedy the debt. Hence, affecting other countries by reducing their surplus as deflation burdens spending

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