• Research Paper on:
    Exchange Rate Management

    Number of Pages: 8

     

    Summary of the research paper:

    An 8 page paper discussing the purchasing power parity (PPP) measure as used to compare movements of currencies on the world market and against each other. Even where exchange rates are fully free-floating the PPP is useful for comparing currencies and predicting which currently are undervalued and can be expected to rise in the future. The purpose here is to assess the statement, "A country's choice between a hard peg and floating exchange rate depends in part on the characteristics of the economy and in part on its inflationary history." Bibliography lists 10 sources.

    Name of Research Paper File: CC6_KSfinXchgPar.rtf

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    Unformatted Sample Text from the Research Paper:
    that a nation chooses to use to manage its currency on world markets, it is the purchasing power parity (PPP) measure used to compare movements of currencies on the world  market and against each other. Even where exchange rates are fully free-floating the PPP is useful for comparing currencies and predicting which currently are undervalued and can be expected  to rise in the future. The purpose here is to assess the statement, "A countrys choice between a hard peg and floating exchange rate depends in part on the  characteristics of the economy and in part on its inflationary history." The Bipolar View In the past, currencies either were hard-pegged or fully  free-floating; there was little middle ground. The German deutschemark was the pre-euro standard; today it often has been the US dollar. These extremes represent the "corners" of exchange  rate regimes; the "bipolar" view incorporates one or more of a variety management methods that lie on a continuum between full control and no direct control. Fischer (2001) categorizes  both developing and emerging market countries according to eight divisions: * "Arrangements with no separate legal tender" * "Currency board" * "Other conventional fixed pegs" * "Pegged rate in horizontal  band" * "Crawling peg" * "Rates within crawling bands" * "Managed float with no pre-announced exchange rate path" * "Independently floating" (Fischer, 2001)  Fischer (2001) identifies the "big three" among world currencies: the dollar, the euro and the yen. He also notes that "The remarkable instability of exchange rates among the  major currencies is a perennial topic of concern and discussion" (Fischer, 2001), often with disconcerting effects on the currencies of other countries pegged to any one of those three. 

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