StudentShare
Contact Us
Sign In / Sign Up for FREE
Search
Go to advanced search...
Free

Exchange Rate Policies - Essay Example

Cite this document
Summary
Nations try to achieve comparative advantage through various means such as technology, just-in-time logistics and many more. Exchange rate is one of the many ways that country can use to their advantage in…
Download full paper File format: .doc, available for editing
GRAB THE BEST PAPER94.7% of users find it useful
Exchange Rate Policies
Read Text Preview

Extract of sample "Exchange Rate Policies"

Exchange Rate Policies Comparative advantage is the mantra for global trading in current times. Nations try to achieve comparative advantage through various means such as technology, just-in-time logistics and many more. Exchange rate is one of the many ways that country can use to their advantage in global trading (Douma & Schreuder, 2008). This paper explores how China has used the exchange rate mechanism in maintaining the comparative advantage for its producers and what the U.S. can do to counter it.

China is the largest trading partner of the U.S. and it has successfully managed the exchange rate of its currency to their advantage. It would be worth contemplating the trade gap between these two countries in the last four years as enumerated in the following table. All figures are in millions of U.S. dollarsYearExports to ChinaImports from ChinaBalance2011103,939.4399,361.9-295,422.5201091,880.6364,943.9-273,063.2200969,496.7296,373.9-226,877.2200869,732.8337,772.6-268,039.

8 Source: http://www.census.gov/foreign-trade/balance/c5700.htmlAbove balance of trade in favor of China says a lot about the comparative advantage that China has in a vast array of goods. Moreover, the pertinent point is that China has successfully tilted the advantage in its favor through a managed exchange rate regime. It is of no surprise that China has accumulated over $3trillion in its reserve through this comparative advantage in trade. A couple of years back, China had pegged its currency Yuan at about 8.

28/dollar and that remained at that level fairly for a long time. China transited to a ‘managed float’ in 2005 but till date it has refrained from ‘free floating’ Yuan. China does so because it does not want to see its currency appreciate against dollar. In doing so, China may lose the comparative advantage that it has gained across a wide range of goods. The U.S. is passing through a dire recession and unemployment rate continues to hover around 9 percent for last several quarters. There is no denying to the fact that the U.S. industries are at great loss so far comparative advantage is concerned.

That is why economists like Krugman (2011) strongly advocates that a weak dollar is in the interest of U.S. to protect its producers. That is also a way to eliminate the U.S. trade gap with China providing a level playing field to the U.S. manufactures. ReferencesDouma, S. W.; Schreuder, H. (2008). Economic Approaches to Organizations. Prentice Hall, New York. Print.Krugman, P. (2011). Holding China to Account. The New York Times. Retrieved 14 August, 2012 from http://www.nytimes.com/2011/10/03/opinion/holding-china-to-account.

htmlTrade in Goods with China (2012). United States Census Bureau. Retrieved 14 August, 2012 from http://www.census.gov/foreign-trade/balance/c5700.htmlhttp://cepfe.nmsu.edu/?q=book/print/31

Read More
Cite this document
  • APA
  • MLA
  • CHICAGO
(“Exchange Rate Policies Essay Example | Topics and Well Written Essays - 250 words”, n.d.)
Retrieved from https://studentshare.org/macro-microeconomics/1601607-exchange-rate-policies
(Exchange Rate Policies Essay Example | Topics and Well Written Essays - 250 Words)
https://studentshare.org/macro-microeconomics/1601607-exchange-rate-policies.
“Exchange Rate Policies Essay Example | Topics and Well Written Essays - 250 Words”, n.d. https://studentshare.org/macro-microeconomics/1601607-exchange-rate-policies.
  • Cited: 0 times

CHECK THESE SAMPLES OF Exchange Rate Policies

Australia's Economy Over The Last Two Years

The monetary policy in Australia has to do with the Reserve Bank of Australia interest rate, as well as the Exchange Rate Policies, and transmission mechanisms.... Therefore, monetary policy and fiscal policy, as well as exchange rate, are three core aspects of Australia's macroeconomic framework, which have been extremely important for the past two years, as these have provided a great level of flexibility for the country to deal with economic shocks that it experiences from time to time....
4 Pages (1000 words) Essay

Economic Environment of Saudi Arabia

Exchange Rate Policies between the country and other foreign nations also affect the USA companies in Saudi Arabia.... Saudi Arabia economic policies have greatly transformed after the oil boom of 1974 (Gonzalez 1583).... This is by initiating effective policies aimed at reducing unemployment among its own nationals as it stimulates development in diverse sectors besides uplifting people's wellbeing.... Among these risks may include foreign direct investments policies that may not favor development of the US companies in this country....
3 Pages (750 words) Assignment

The Introduction of a Single Currency

However, this does not assess the potential cost and benefits of a GCC monetary union, taking into account that political influence has been considered in the introduction of a single currency, and no analytical options for monetary, as well as the Exchange Rate Policies within the GCC after a single currency implementation have been launched.... However, this does not assess the potential cost and benefits of a GCC monetary union, taking into account that political influence has been considered in the introduction of a single currency, and no analytical options for monetary, as well as the Exchange Rate Policies within the GCC after a single currency implementation have been launched....
4 Pages (1000 words) Essay

Balance of Payments and Exchange Rates

A country with a fixed exchange rate policy maintains a set level for their currency by using reserves to either buy up excess currency so flood the market with currency when there is a demand.... Floating exchange rate countries let the market determine their exchange rate; this is normally done by a country with a strong economy.... The level of a country's exchange rate has an impact on the balance of payments and vice versa....
4 Pages (1000 words) Essay

Politics and good governance

We shall begin with those factors we believe have militated and still do militate against the successful implementation of Exchange Rate Policies in developing countries.... hellip; 237) It would almost appear that the single most important duty of the government of any developing country is the formulation of an optimal foreign exchange rate policy.... Even the position of the World Bank and International Monetary Fund in favor of a particular exchange rate regime for every developing country (Calvo and Mishkin, 2003) seem to give this position supremacy over every other position. Much heat has been generated on the the subject of the best foreign exchange rate regime for developing countries....
12 Pages (3000 words) Essay

Brazil exchange rates regime history and analysis from 1960 to 1975 (economics paper)

This paper focuses on the exchange rate regime of Brazil during the 1960 to 1975 period and why the policy makers declined to change their exchange rate regime, in 1948 brazil introduced par value for the Cruzeiro, however in 1967 the crawling peg exchange rate regime was introduced, the crawling peg system was based on frequent and small adjustment in the exchange rate which was to signify the changes in inflation and prices in Brazil, this exchange rate regime led to long term stability in the Brazilian currency the real. … In 1971 the US floated its currency and as a result the devaluation of the dollar would affect the exchange of the Brazilian currency with other major currencies, during this period the Brazilian policy makers believed that the balance of payment was best managed by import control and export incentives, trade flow was in this period controlled by tariffs, subsidies and the direct control on trade....
4 Pages (1000 words) Essay

Is the Chinese Currency Undervalued

China maintains a fixed exchange rate policy relative to the US dollar as opposed to the convention in most of its trading partners, which follow flexible Exchange Rate Policies.... The United States… rnment, for instance, has repeatedly raised the issue, noting in one policy pronouncement that the countrys exchange rate is a source of concern and proceeded on warning the world against and only stopped short of calling the country a currency manipulator (Rajagopalan & Essentially, China enjoys preference as an import destination because its products are cheaper on account of the low value of the yuan....
5 Pages (1250 words) Research Paper

Event this week

New political economy of Exchange Rate Policies and the enlargement of the Eurozone.... This plunge will affect the British economy if it persists since the foreign exchange created by the sale of petroleum products will fall to low levels.... It has also brought confusion in Futures markets and international stock exchange markets....
1 Pages (250 words) Assignment
sponsored ads
We use cookies to create the best experience for you. Keep on browsing if you are OK with that, or find out how to manage cookies.
Contact Us