The Exchange Rate Regime of the UAE

2738 Words6 Pages
bulb-icon

Recommended: Importance of exchange rate

Introduction
The significance of exchange rates within the economy of any society cannot be over emphasized since it is a relevant price concept of any nation. Alterations in exchange rates can lead to massive reallocations of raw materials, resources as well as production between the tradable and non-tradable sectors of the economy of any Country. But seldom is the concept of the exchange rate truly depicted for what it truly is: A relative price, which like any other economic entity is responsive to the laws of supply and demand. When viewed from an approach of a price concept, the exchange rate, according to fundamental economic theories can then be evaluated and determined within an economic system, its behavior as well as its significance can then be understood by outlining and paying relevant attention to certain factors within the economic system that influence it.
In recent times, the IMF has emphasized the need for improved coordination of exchange rate and monetary policies in core areas of macroeconomic management in light of increasing capital mobility. In close relations, the advantages or merits of exchange rate regimes and its alternatives may best be argued in a coherent monetary order framework in terms of the interaction of monetary as well as exchange policies. Exchange rates and the exchange rate regimes are all but distinctive entities in a wider, more versatile set of arrangements termed as the monetary order hence, policies geared towards them should generally and ideally be discussed in this broader, more versatile context.
The adoption of an appropriate or adequate exchange rate regime is most times perceived as a complex and technical process. Several nations around the globe have adopted the floating...

... middle of paper ...

...tp://www.dof.gov.ae/en- us/publications/Lists/ContentListing/Attachments/53/1.pdfSebastian November, 11th 2013.
Latter, T. (1996) The Choice of Exchange Rate Regime. Center for Central Banking Studies,
Bank of England, London.
Jeong, J. & Lee, Y. (2001) International Transmission of Inflation under Alternative
Exchange Rate Regimes: Empirical evidence and its Implications. Global Finance
Journal, 12, p.121-137.
McKinnon, Ronald. (1990). The Exchange Rate and the Trade Balance: Insular versus Open
Economies; Open Economies Review, Vol. 1, No.1.
Mabry and Ulbrich, (1994) Economics. 2nd edition. USA, Houghton Mifflin Company.
Morris, G. (2003) Too Sensational: On the Choice of Exchange Rate Regimes. Economic
Journal, 113(491), p.663.
Mishkin, F.S. (1996) Understanding Financial Crises: A Developing Country Perspective.
NBER Working Paper, 5600, p.1-21.

Show More
Related

  • Big Mac index

    1187 Words  | 3 Pages

    The law of one price is ease to test in the same country, this is done through comparing the prices of goods; example, is the price of a meal the same in different cities within the same country (Port of Spain, Chaguanas, San Fernando) or within Trinidad’s sister island Tobago? The theory indicates that prices ought to be homogenous throughout. Conversely, the comparison of prices between different countries where different currencies are used tends to be a lot more difficult; however, this can still be done by looking at international currency markets where traders exchange currencies at some rate of exchange depending on the demand and supply of each c...

    Read More

  • Macroeconomic Forecasting

    1873 Words  | 4 Pages

    Economic indicators often affect and influence the value of a country's currency. The Trade Deficit, the Gross National Product (GNP), Industrial Production, the Unemployment Rate, and Business Inventories are examples of economic indicators. We will be dealing with four specific indicators: interest rate, inflation, unemployment, and employment growth, as well as Real Gross Domestic Product (GDP). Real GDP is so called because the effects of inflation and depreciation are accounted for in the figures. The state of the economy is important both on a micro and macroeconomic level.

    Read More

  • Fixed Exchange Rate Essay

    720 Words  | 2 Pages

    Supported by the domestic intuitional framework, which details that political outcomes are results of a variation in the “rules of the game,” producers are the ones to benefit from a floating exchange rate. Interests are translated into policy via domestic institutions. For example, Congress and farm subsidies. Individuals are interested in their own well-being. Winners gain by lobbying because they prove better than their opponent. In this framework, politicians decide based on majority principles and an increased demand for a country’s products. With more money flow, businesses have incentives to increase domestic prices (Wellhausen 10-2-14). Being so, exchange rate policy is homily political in that it is chosen by a differentiation in the “rules of the game.” Again, everyone sets out to seek their own best interests. Within this same framework, politicians find themselves in a catch-22: although they choose that which is to come, in doing so, they face vast amounts of pressures. Special interest groups and mass public opinions alone carry enough weight to affect any course profoundly and profusely (Frieden, p.

    Read More

  • Monetary and Fiscal Policy

    1405 Words  | 3 Pages

    This is a monetary policy which involves the government’s intervention to curb disorderly trends in the foreign currencies level. In case the quantity of a local currency goes down, the central bank uses the foreign currencies to buy its currency from the foreign economies. This ensures that the economy has ample home currency and thus enough money in circulation.

    Read More

  • The Bretton Woods System

    1773 Words  | 4 Pages

    The theme of this essay outlines two things. One, the key elements of Bretton woods system and second, the characterisation of Bretton woods system by Ruggie as ‘embedded liberalism’, and how far he succeeds in it. The Bretton woods system is widely referred to the international monetary regime, which prevailed from the end of the World War 2 until the early 1970s. After the end of the World War 2, the need of international monetary framework to boost trade and economic; growth and stability, was important. Taking its name from the site of the 1944 conference, attended by all forty-four allied nations; the Bretton Woods system consisted of four key elements. First, to make a system in which each member nation has to fix or peg his currency exchange rate against the gold or U.S. dollar, as the key currency. Secondly, the free exchange of currencies between countries at the established and fixed exchange rate; plus or minus a one-percent margin. Thirdly, to create an institutional forum, so-called International Monetary Fund (IMF), for the international co-operation on money matters: to set up, stabilize, and watch over exchange rates. Fourth, to remove all the existing exchange controls limiting (protectionism) policies by the members, on the use of its currency for international trade. In practice the first scheme, as well as its later development and final demise, were directly dependent on the preferences and policies of its most powerful member, the United States. According to John Gerard Ruggie, 1982, this Bretton woods system of monetary co-operation represented the type of liberalism which characterise “domestic social economic stability along with a liberal trading order.” He referred this system as ‘embed...

    Read More

  • Saudi Arabia Capital Market Case Study

    1215 Words  | 3 Pages

    Saudi Arabia’s capital market is considered to be young compared to other financial markets in the region. Saudi financial markets have been developing slowly because most enterprises in the country are either government owned or family-owned, most of which was funded through state budget, and as a result reduced the need for financing. In the recent past, Saudi Arabia has focused on a careful measurement for structural developments and regulatory changes. However, different phases of historical development of the capital market which can be classified into three phases; pre-industrialization phase, post industrialization phase and growth phase that sparked changes and shaped the kingdom 's capital market on

    Read More

  • Foreign Exchange Market of Bangladesh

    1165 Words  | 3 Pages

    Foreign Exchange Market allows currencies to be exchanged to facilitate international trade and financial transactions. Evolution of the market in Bangladesh is closely linked with the exchange rate regime of the country. It had virtually no foreign exchange market up to 1993. BANGLADESH BANK, as agent of the government, was the sole purveyor of foreign currency among users. It tried to equilibrate the demand for and supply of foreign exchange at an officially determined exchange rate, which, however, ceased to exist with introduction of current account convertibility. Immediately after liberation, the Bangladesh currency taka was pegged with pound sterling but was brought at par with the Indian rupee. Within a short time, the value of taka experienced a rapid decline against foreign currencies and in May 1975, it was substantially devalued. In 1976, Bangladesh adopted a regime of managed float, which continued up to August 1979, when a currency-weighted basket method of exchange rate was introduced. The exchange rate management policy was again replaced in 1983 by the trade-weighted basket method and US the dollar was chosen as intervention currency. By this time a secondary exchange market (SEM) was allowed to grow parallel to the official exchange rate. This gave rise to a kerb market.

    Read More

  • Essay On Floating Exchange Rate

    2810 Words  | 6 Pages

    There have been deliberations about the ideal exchange rate system for a period of time, dazzling the advancement of the world economy and the manner of monetary policy.

    Read More

  • Why Is It so Difficult to Forecast Exchange Rate Movements?

    1047 Words  | 3 Pages

    The stability of currency values plays a significant role for economic and financial stability. It is not difficult to see the exchange rate fluctuations are widely regarded as damaging. As the movements of the exchange rate have significant and large effects on the trade balance, resource allocation, domestic prices, interest rate, national income and other key economic variables. Then can exchange rate movements be predicted by these fundamental economic variables?

    Read More

  • The Islamic Capital Market

    3126 Words  | 7 Pages

    The purpose of this report is to learn about the development of Islamic capital market. Islamic capital market is a growing and important sector in Islamic financial system. It has been developed since a few decades ago led by Malaysia. Even though it has been develop, many issues and challenges arise in order to align with the perfect Islamic capital market. In contrast, with the challenges they face, it lead to a very bright future of Islamic Capital Market.

    Read More

  • The International Monetary Fund (IMF)

    2037 Words  | 5 Pages

    The IMF was established to promote internal monetary cooperation through a permanent institution, which provides the machinery for consultation and collaboration on international monetary problems. Also, it provides temporary financial assistance to countries under adequate safeguards to help ease balance of payments adjustments. In addition, it facilitates the expansion and balanced growth of internal trade.

    Read More

  • European Economic Community

    1478 Words  | 3 Pages

    From the late 1960’s onwards, international currency markets became increasingly volatile. The early part of the next decade brought the oil crises and further fluctuations, leading to attempts by European leaders to achieve monetary stability. The objective of the European Economic Community was to achieve an economic and monetary union by 1980, for closer economic and political integration. In 1979, however, the Member States (excluding the United Kingdom) created instead the European Monetary System (EMS), in order to attain stability in exchange rates and thus growth and stability in their economies. Under this new system, member countries harmonized monetary policies; through the use of an Exchange Rate Mechanism (ERM), the currencies of the eight states were only allowed to fluctuate by a certain amount, within a narrow band of 2.25% above or below the central rate.

    Read More

  • The Foreign Exchange Market

    1006 Words  | 3 Pages

    The foreign exchange market is one of important mechanism in the international business because foreign exchange is an intermediary for all nations in term of the growth of the economy. There are many functions of foreign exchange market in the global economy. In the international business, it uses the foreign exchange markets in four ways. First, the pay...

    Read More

  • Essay On Exchange Rate

    1267 Words  | 3 Pages

    As the foundation for the foreign exchange process, exchange rates are one of the most important elements in business, both internationally and domestically. Defined as the rate at which one currency may be converted into another, exchange rates are used by countries in order to purchase products or services from one another. When examining these exchange rates it is important to note that their two distinct types of rates used for global trade: nominal and real.

    Read More

  • Essay On Exchange Rate Of Dollars

    670 Words  | 2 Pages

    ...n world movement of monetary resources at the heart of internationalization of monetary policy of the USA the international role of dollar which remains the main reserve and settlement currency in world monetary system lies.

    Read More

More about The Exchange Rate Regime of the UAE

Open Document