FAISAL MEHMOOD RASHID HAMEED SHAKEEL AHMED

(4503-mba/fms-s10) (4502-mba/fms-s10) (4537-mba/fms-s10)

EXCHANGE RATE SYSTEM HOW IT IS USED AND ITS IMPACT ON DIFFERENT ECONOMIES

FAISAL MEHMOOD

Fixed and Floating Exchange Rate System

Fixed Exchange rate system In a fixed exchange rate system, exchange rates are either held constant or allowed to Fluctuate only within very narrow boundaries.
PROS AND CONS OF FIXED EXCHANGE RATE

SYSTEM

 The Case for Fixed Exchange Rates

The main arguments for adopting a fixed exchange rate system are as follows:
Promote Trade And Investment
Some flexibility permitted Reductions in the costs of currency hedging Disciplines on domestic producers Reinforcing gains in comparative advantage

 Floating Exchange rate system

In a freely floating exchange rate system, exchange rate values are determined by market forces without intervention by governments. Whereas a fixed exchange rate system allows no flexibility for exchange rate movements, a freely floating exchange rate system allows complete flexibility. A freely floating exchange rate adjusts on a continual basis in response to demand and supply conditions for that currency.
PROS AND CONS OF FLOATING EXCHANGE

RATE SYSTEM

 The case for floating exchange rates:

The main arguments for adopting a floating exchange rate system are as follows:

Reduced need for currency reserves Useful instrument of macroeconomic adjustment Partial automatic correction for a trade deficit Reduced risk of currency speculation Freedom (autonomy) for domestic monetary policy Floating exchange rates are not always volatile exchange rates

Articles and Research work References

 China Ends Fixed-Rate Currency

by Peter S. Goodman WP Friday July 22, 2005)

Protectionism No Fix for China's Currency

by Daniel Griswold This article appeared on cato.org on June 25, 2005.

Chinese President to Consider Methods to Float

Exchange Rate
by JANE PERLEZ Published: October 20, 2003

EXCHANGE-RATE REGIMES POSSIBLE OPTIONS

By Blayne Haggart: Economics Division,27 October 1999

 The Bretton Woods System

(This article is adapted from the book "Outline of the U.S. Economy" by Conte and Carr)

Don't Expect Yuan to Rise Much, China Tells World

Central Bank Says Change in Policy Was Only to Adjust Exchange Method (By Peter S. Goodman, Washington Post Foreign Service, Wednesday, July 27, 2005)

Fixed versus floating exchange rates which is best for

an economy?
Author: Geoff Riley, Eton College, September 2006

ASIAN CRISIS
(Different Articles at WIKIPEDIA)

CONCLUSION

SHAKEEL AHMAD

Managed Exchange Rate System

Agenda
What is Managed Exchange Rate System?
Methods of Intervention Affect of Managed Exchange Rate System on Different

Economies Why do you think Central Banks might prefer a managed exchange rate system over a fixed or a floating exchange rate? Conclusion

 What is Managed Exchange Rate System? Methods of Intervention

Direct Intervention Indirect Intervention

 Effect of Managed Exchange Rate System

Managed Exchange Rate System: The Singapore

Experience, by Jason Lee, Edward Robinson and Saktiandi Supaat

Managed Exchange Rate: The Case of the New Taiwan,
by Christina Y. Liu

Foreign exchange policy and intervention in Thailand, by

Financial Markets Operations Group, Bank of Thailand

 Why do you think Central Banks might prefer

a managed exchange rate system over a fixed or a floating exchange rate?

Conclusion

RASHID HAMEED

Pegged Exchange Rate System

 Pegged Exchange Rate

Home currencys value is pegged to a foreign currency or to some unit of account

History
Snake (1972)
European Monetary System (1979) EMS Demise (1992)

 Pros
Brings more foreign investment Exporters (Can earn more profit)

Cons
Inflexibility in adapting to economic events
Requires large amount of reserves

Articles Reference
The Pros And Cons Of A Pegged Exchange

Rate (February 16 2011)

The Chinese Model

Why does a nation maintain a pegged

currency regime?

For Inflation For Political For Monetary Unions In Currency Crises

 What Is a Peg to the Dollar?

by Kimberly Amado

Conclusion