Dirty Float Exchange Rate System Finance Essay - Free Essay Example

Sample details Pages: 7 Words: 2154 Downloads: 7 Date added: 2017/06/26 Category Finance Essay Type Cause and effect essay Did you like this example? What is an exchange rate. Are terms like managed float, dirty float, fixed exchange rates, floating exchange rate, pegged exchange rate, crawling peg the same? Which type of exchange rate regime does India follow? What is a currency crisis? In recent times the rupee is becoming weaker against the dollar every day, what are the reasons for the same and what steps is the RBI taking to control the same. So, is the rupee depreciating or devaluing against the dollar? Support your conclusion by giving a dollar rupee graphical trend for the last three months? Exchange rate Meaning When the price of another countrys currency is expressed in one countrys currency Or it can be said that the rate at which another currency can be exchanged for one currency. The exchange rate is that rate  at which another  currency  can be converted into one currency. The  exchange  rate  can be used in order to convert one currency to another currency or for indulging oneself into  speculation  or  trading  in the  foreign exchange market. The factors which influence the exchange rate are  interest rates,  inflation, and the state of politics and the  economy  in each country. The exchange rate is also called  foreign exchange rate  or  currency exchange  rate. The exchange rate between two  currencies  may be defined as the rate at which currencies can be exchanged for one another. It can also be defined as the value of currency of one country in terms of currency of another country. The current exchange rate is also known as spot exchange rate. The  exchange rate that is quoted and traded today but for delivery and payment on a specific future date is known as forward exchange rate. Don’t waste time! Our writers will create an original "Dirty Float Exchange Rate System Finance Essay" essay for you Create order Example The amount at which exchange rate will be higher for one euro in terms of one  yen,  the lower the relative value of the yen. Dirty float exchange rate system The dirty float exchange rate is also called managed float. The dirty float or managed float exchange rates are those rates in which the government of country or the central bank of country  occasionally intervenes to change the direction of the value of the currency of the country. In most instances, the intervention  aspect of a  dirty float system is meant to act as a buffer against an external economic shock before  its effects become truly disruptive to the domestic economy.  Ãƒâ€šÃ‚  Also known as a managed float. Managed float The managed float is a type of float in which a  process  of floating of a  currency takes place  where the  Ãƒâ€šÃ‚  exchange rate is controlled by the central bank managed float is also called dirty float Dirty Float Managed float and dirty float are same thing which can be understood by the example below For example, country  X  may find that some hedge fund is speculating that its currency will depreciate substantially, thus the hedge fund is starting to short massive amounts of country Xs  currency.  Because country  X uses a dirty float system, the  government decides to take swift action  and buy back a large amount of  its currency  in order to limit the amount of devaluation caused by the hedge fund. A  dirty float system  isnt considered to be a true floating exchange rate  because, theoretically,  true floating rate systems  dont allow for intervention. Fixed exchange rate system The fixed exchange rate system is also known as pegged exchange rate system. The fixed or pegged exchange rate system may be defined as a countrys exchange rate regime under which  the government  or  central bank  ties the official exchange rate to another countrys currency (or  the price of gold).   The main motto of fixed exchange rate system is to maintain a currency of country value  into a very narrow band. The fixed exchange rate system may also be referred as the rates which are fixed may provide greater certainty to exporters and importers. This also  helps the government to maintain inflation at low rate, which in the long run should keep interest rates down and stimulate increased trade and investment Floating exchange rate system The floating exchange rate may be defined as a countrys exchange rate regime where currency of a country is set by the foreign-exchange market through supply and demand for that particular currency relative to other currencies.  Thus, floating exchange rates are those rates which changes freely and may determine by trading in the forex market.   India follows managed float exchange rate system for the determination of the exchange rate. Currency Crisis The situation arises which makes the  value  of currency  unstable,  makes it difficult for the currency to be used as a reliable  medium of exchange. The effect of a currency crisis can be mitigated by sufficient  reserves in foreign country. A currency crisis can also be termed as  crisis. The currency crisis can also be termed as  balance-of-payments crisis, occurs when currency gets devaluated suddenly due to chronic balance-of-payments deficits which usually ends in a  speculative attack  in the foreign exchange market. The currency crisis happens when the value of a  currency changes quickly, reducing its ability to serve as a  medium of exchange  or a  store of value. The currency crisis is generally associated with a  real economic crisis. Currency crises can be especially destructive to small  open economies  or bigger, but not sufficiently stable ones. Governments often take on the role of fending off such attacks by satisfying the  excess demand  for a given currency using the countrys own currency reserves or its foreign reserves   Graphical representation of downfall of rupee https://www.thehindubusinessline.com/multimedia/dynamic/01123/bl25_rupee_col_eps_1123618f.jpg June 24, 2012:  Ãƒâ€šÃ‚   Over the past year, the rupee has dropped nearly 26 per cent against the dollar. In just the last three months, the rupee has dropped 12.6 per cent, closing at 57.15 to the dollar last Friday. This is the sharpest fall in any quarter for the rupee. Even during the crisis of 2008, there was not so much depreciation in such a short time. Most companies, especially importers, have found their capacity for tolerance of such volatility stretched. Reasons for downfall of rupee ECONOMIC FACTORS Balance of payment The balance of payment may be defined as systematic record of all economic transaction between residents of country and rest of the world. The exports or selling goods or services from one country to other country and imports or purchases of goods and services from one country to other country.. The country get foreign currency for exports and the country pays foreign currency for imports. The net position of this is the balance of payment. India has a deficit balance of payment because the import payments of India are more than the export receipts. This deficit is compensated by receipts from money sent by NRIs and borrowings.. Hence India is forced buy dollars to pay the deficits. The price goes up with the demand of something. So the rupee fetches lesser dollar rupee and starts falling. INFLATION AND FISCAL DEFICIT The inflationary problems are being faced by the country since last many months. Though the government and Reserve Bank are taking various steps, the inflation is not getting reduced. Due to the deficit, and the inflation the foreign investors are not interested to invest their money and hence the needed continuity in inflow of dollar becomes less and the rupee falls against dollar. FALLING FOREX RESERVES if a country has huge forex reserves, the money for imports can be paid from the reserves. But if the forex reserves are poor the country is forced to buy its forex at a high price. Forex reserves of India had a drastic fall and therefore country is forced to buy dollar requirements. This  causes rupee to fall. SHORT TERM BORROWINGS REPAYMENT The foreign exchange market  evaluates the debt repayments of a country in the immediate short term. India has amounts of repayment shortly due, to the country has poured of dollar reserves  in the recent months to intervene against falling rupee. Hence market has sensed the demand for dollar against rupee. Political and policy factors behind falling Rupee Though the India is politically stable, there are many indirect signals giving hint that the political government is not strong enough. The weak show of Congress, the main ruling party at centre, in most of the elections and by-elections give a suspicion that it may not come back in the next elections. The buckling of the central government under pressure from its minor coalition parties and withdrawing from many policy decisions make the foreign investors suspicious. This sentiment works against the country, and foreign investors are discouraged from investing till a stronger and clearer picture emerges. This affects the strength of rupee and leads to its fall. OTHER FACTORS FOR FALLING OF RUPEE Currencies react to both the fundamentals of demand and supply as well as sentiment. Sentiment is down a spate of bad news on the economic front slowing GDP, rating downgrades, policy drift, high inflation, lack of rate cuts etc., contributed to it.On the fundamentals side, India is a net importer and therefore needs more dollars to pay for oil and gold (its two main imports) as well as other imports. India imported $180 billion more of goods than it exported (last years total imports were $480 billion while exports were $300 billion). This greater demand for dollars is of course reduced partially by capital inflows, borrowings, remittances, software earnings etc. OIL PRICES India imports 83 per cent of its oil requirements (last years bill was $150 billion). The monthly demand (of $12 billion) on this account as well as rising oil prices has usually kept the rupee under pressure. Apart from oil, there are gold imports for which the country paid nearly $60 billion last year. Now, ironically, prices of both oil and gold have been coming down which is expected to have favourable impact on the trade deficit this year. Brent crude prices have dropped to $90 a barrel, a drop of nearly 30 per cent since early 2012. A $1 decline in oil prices should help reduce current account deficit by about $1 billion. The drop in oil prices has allowed markets to project that trade deficit will be down by $25 billion this year. Such inferences should in the normal course have led to an appreciation of the rupee. This is something market experts say will still happen eventually perhaps in six months to one year. But in the short term there is a mood of panic and poor sentiment and dire predictions that the rupee is heading for retirement the euphemism for its value touching 60 to the dollar. There is now a unidirectional and sustained downtrend in the short-term, market experts say. For example experts say that importers are increasing the tenor of their cover the protection they buy against a further decline in the rupee. In simple terms, if importers covered their import bills for 2 months earlier, they are now doing it for three to four months. This, they say is contributing to panic, further volatility and uncertainty. In contrast, exporters, revenue earners such as software industries, are not selling dollars that they earn, waiting for the rupee to depreciate further. HIGH HEDGING COST The cost of hedging through one-year forward contracts has been high. The forward premium was as high as 6.6 per cent a few weeks ago, before falling to 4.83 per cent just before the RBI policy. The disappointment at not getting the expected cut has resulted in forward premiums once again jumping to 5.5 per cent now. Even CII President, Mr Adi Godrej, told  Business line  recently, that the cost of hedging was prohibitively high and he preferred not to hedge. BUNCHING PAYMENTS Experts say that bunching of payments by oil companies (for oil imports) in the spot market has increased demand for dollars in the short term. Normally, oil companies avail of short-term buyer credit of between 3-6 months and stagger their payments. However, with the rupee depreciating so drastically, they prefer to pay their bills immediately rather than buying on credit. This creates a further pressure in an already frayed market. STEPS BY RBI Normally, the Reserve Bank is trying to cool this down by opening a special window for oil companies (so that they dont buy more dollars in the market) for a short period of time. There has been such talk in the market although there is no official word yet. RBI recently indicated that it will sell dollars directly to oil companies in order to ease pressure from the currency. Besides, the central bank has already taken steps to curb speculation in the forex market and tried to increase the inflow of foreign currency. Since early March, rupee has lost about 13 per cent against the dollar driven by a combination of deteriorating global risk sentiment and weak domestic fundamentals. The rupee gained 27 paise to close at 55.37 after RBI intervened on currency breaching the 56-level in early trade.

Should Smoking Be Banned - 895 Words

People smoke all over the world. Smoking has been around for many decades. Controlling the usage of smoking depends on the smoker. Believe it or not, the government has a huge part on this. In some countries, smoking in public or enclosed areas is banned. In the United States, the owner of any public place has the right to put a â€Å"No Smoking Area† sign. Unfortunately even with these regulations, the smoker doesn’t realize how smoking can be harmful to them and their surroundings; people are simply not well educated on how smoking can harm themselves and others. Smoking in public must be banned because it kills. About 42 million adults’ smoke, that’s proximately one out of five adults (American Cancer Society). Researchers said, that smoking more than two boxes have a higher chance of getting cardiovascular disease (Southern Medical Journal). The taxes on smoking products in the United States are taxed mostly the highest rate. This is one of the main re ason the government in the United States has not put any strong regulation of smoking in public. The United States Government believe in money. In their state of thinking, without money there is a bad economy, no jobs, and more debts. While in other countries such as Norway and Italy had successfully banned smoking in public. Ireland was the first country in 2004 to force a laws about this situation (EPHA). I have made my own little survey. I asked around if they think second hand smoking can cause serious damage. Out ofShow MoreRelatedShould Smoking Be Banned?845 Words   |  4 PagesThe smoking population in London stands around 1.2 million and with such a significant percentage of this city with the habit, it is unsurprising the ban has caused such wide controversy. Without hesitation, I add my voice to the chorus of non-smokers who think this ban goes too far. However, I am not saying that smoking is in any way good as I am extremely aware of the gruesome health risks and unatt ractive photos of black lungs and lopsided livers that litter the media. I just ask of you Britain;Read MoreShould Smoking Be Banned?1672 Words   |  7 Pagesthis is not a choice. This creates the problem of second-hand smoke, which is more harmful than people think. What is worse is that people who inhale second-hand smoke are doing so without consent.Therefore smoking in any public place should be banned.Second-hand smoke is just as harmful as smoking and leads to a higher prevalence of cancer and heart disease. Many people smoke for enjoyment. Enjoyment is what an individual experience when they are having a good time. When an individual is enjoyingRead MoreSmoking Should Be Banned1031 Words   |  5 PagesSmoking is an expensive habit. Smokers’ claim that it helps relax them and relieves stress but there are more negative effects of smoking outweigh the positive effects. Smoking is a health hazard not only for smokers but also for non-smokers. Smokers have the right to choose what to do with their own body and wellbeing but they should respect non-smokers choice to not be subjected to the smoke. Many people believe that there are good and bad outcomes from smoking. I believe that smoking should beRead MoreThe Smoking Should Be Banned860 Words   |  4 Pages On August 31, 2008, Maine made the law for no smoking in cars with children under 18. Warnings were given out until 2009 of September 1st; but starting September 2nd of 2009, fines of fifty dollars would be given out if caug ht by police. The making of this aw, is to limit teenagers with their license to stop smoking in cars. Smoking should be banned in motor vehicles in all states if person is/are over 16 of age. For teens, smoking is a distraction just like talking on the phone or texting whileRead MoreShould Smoking Be Banned?1326 Words   |  6 Pagesbreak. Even though people are well equipped with the knowledge of how unhealthy smoking can be and what can it causes to their hearts and lungs, they still choose to smoke. Nowadays smoking becomes a trend like a social media, and especially teenagers, are participating in this as well. Although smoking makes you a person feel relaxed from the stress, it harms the body of the smokers in the long run. We have known that smoking can kill us from past 50-60 years, and according to the World Health OrganizationRead MoreShould Smoking Be Banned?2248 Words   |  9 PagesSmoking was first used for medicinal purposes in the early 1600’s. As time conti nued tobacco began to be smoked through pipes and eventually became rolled in paper and tobacco leaves. 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NCAA Sanctions and Paying Players Should This Be Allowed Free Essays

A customer walks into the local Pizza Hut, and sits down. A waiter approaches and asks what kind of pizza they want. The customer gives his order to him, and lays 200 dollars under the menu. We will write a custom essay sample on NCAA Sanctions and Paying Players: Should This Be Allowed or any similar topic only for you Order Now The waiter notices, and takes the money. The customer’s pizza is 10 dollars, and he pays for it by a debit card. When he leaves, he puts 300 dollars under his own plate. The waiter grabs the money, places the money in his pocket, and goes back to working. Now, if two new characters illustrated the names of the waiter and the customer for the football player, and an athletic booster, then everyone would be saying how rude it is, and how corrupt our society is. That is an exact reason why we shouldn’t pay players, and how the sanctions that the NCAA has put down to prevent the main sanction (paying players) from happening. Paying players to play an athletic sport in the NCAA should not be allowed, and that’s because colleges aren’t allowed/shouldn’t pay players and they don’t need to earn money. There are many arguments against paying players The first argument, â€Å"Colleges aren’t allowed/shouldn’t pay players† has many opinionated answers, are biased, or have no clue of what’s going on. In some past research, there have been some points that have been made that they should be paid. Others, for instance, show that they shouldn’t be paid. There’s been that they’re getting free academics, free board, free meal, etc. and there’s also seen that full-ride scholars can’t have a full-time job, so they could use some money. Both, I agree with, but in general, they shouldn’t be paid, but there should be some rule changes. What I’m saying is, is that you notice smaller schools getting hit with the sanctions. For instance, Southern Methodist University, in the 80’s, paid 21 football players over $61,000 to play for them over 3 years. If you notice, there is a rule that you can’t pay players to play NCAA Football. To pay college athletes to play football for you is illegal. They tried to get above the level playing field that the NCAA had set. Their punishment was extremely serious, and called â€Å"The Death Penalty†. â€Å"They lost 55 scholarships, had their 1987 season cancelled, pulled from live television, and banned from postseason play until 1989. And obviously, since they are still in the Conference USA, they haven’t recovered since. â€Å"(Yahoo â€Å"Penalty 4†) The rules are made for a reason, and should always be followed. In another example, The University of Southern California, or known as USC, received a letter of investigation concerning Reggie Bush and his time at USC. He had knowingly received benefits from an outside source. NBC reporter Greg Beachem stated, â€Å"A two-year bowl ban, four years’ probation, loss of scholarships and forfeits of an entire year’s games for improper benefits to Heisman Trophy winner Reggie Bush dating to the Trojans’ 2004 national championship. † As you can tell, he received benefits from some sort of person who won’t be questioned for who he is, because he doesn’t have a name like Reggie Bush does. There were also had noticed that the rule changes that were mentioned earlier were a major part in fixing the rules for players to make money. For instance, Title IX states that all men and women must have an equal amount of scholarships. That may sound just fine, but the truth is, there is no â€Å"Women’s Football†. So that’s 85 scholarships that have to be evened out to women. If Title IX disregarded football, then that rule would be completely fine. Plus, there are 2 sports that generate revenue for an athletic program. That would be men’s football, and men’s basketball. So it’s up to those teams to pay for the entire athletic department. This also shows how players shouldn’t be paid. If only two different sports make money for an entire team, what are the reasons that they should be paying players, when that team may want to use the money for other additions to the campus? Plus, if you left the rich schools to pay for players to come, then a smaller school like Texas Christian University, or Boise State University, wouldn’t ever earn any big time players. Teams like Texas University, Ohio State University, Michigan University, (other rich D1 schools), would buy out all the players, and leave everyone in the dust. The 2nd argument, that players don’t need to be paid, is also a biased argument. Finding information on this rule is very tough, because all search engines bring up many blogs about people’s opinions and those aren’t credible. I’ve noticed that some people think that rule changes are needed, and some say that the whole rule should be abolished, and all athletes should be paid. With my personal knowledge of secrecy and how people can secretly hide items of interest, some students would possibly work at Pizza Hut, have a boosters guy order a $10 dollar pizza and leave a $500 dollar tip. We all know that that’s not right to do, but some regulations need to be lifted. If you let college athlete’s work within the school, such as in the cafeteria, or the library, the NCAA could possibly monitor the earnings they make. It’s possible that if they worked at a Pizza Hut, or a Taco Bell, they could make sure that the NCAA has some sort of access to see the paycheck they earn and make sure it makes it to the bank account. Depending on how big the college is, depends on how the school will be corrupted more. For example, at Capital University, the cost for a year is $33,210 for a full-time undergraduate year, including room, board, etc. Now, if that is compared to the University of Southern California, their tuition is $56,813 per year, including room, board, etc. (USC 2011 estimations) The difference here is, Capital is a Division III school, and has an extremely lower school population than a school like USC. USC has a population of â€Å"15,600 undergraduates as well as a staggering 15,224 graduate students† (USC College Admission). At Capital, you get a smaller amount of TV Time, if not any, while USC is making a large amount of money and getting TV Time every week. If you have to pay players that play for a college that can’t afford to do it, like Capital University, many small colleges will be taken out of athletics, and will be losing scholarships. To add on, it’s not like these athletes have to spend their built-up savings account to go play football. They get to use all the money they saved up to go earn an education in college, to buy what they want. They may not get any more money to spend, but the rough $30,000 that would be in their bank account should be enough if they’re not paying a penny for the classes they have, the meals, their dorm, and their textbooks. Plus, if they’re at a big-time school, like Ohio State, or Texas University, then they especially wouldn’t have to pay the $35,000 that a semester of college costs. But my point isn’t completely set in stone because colleges shouldn’t pay players, but some rule changes need to be made, as I will talk about later. NCAA rules state that if you’re an athlete, you can’t work. When you read that rule, you think of the â€Å"big-name athletes† like Cam Newton or Terrelle Pryor, that have full- rides to play football. But, there’s always the people who have half-year scholarships, or are considered walk-ons, that also can’t work. To add on, I believe that if you aren’t being paid in that season/year, you should be allowed to work. The full-ride scholars are being paid to play football, and getting a free education, while half-scholarship athletes and walk-on athletes are not allowed to work, and are being forced to pay their education. When you go on to any college website, you will find a link to go to something about financial aid, so it’s not like nobody is out to help. To talk about rules are a different story, and it needs to be addressed. To define what the NCAA calls a Professional Team, â€Å"is if it declares itself to be professional or provides any player more than actual and necessary expenses for participation on the team. † (NCAA Guide 10) The NCAA-made pamphlet answers all questions to the rules that I’ve mentioned. It states rules for students who are in Division I or Division II schools, such as Division 1 student-athletes aren’t allowed to accept a salary, while Division II student-athletes are permitted to do so. Division II teams can enter a contract with a professional team, while Division I teams can’t. Do these rules sound fair? I have to say yes, because Division II teams don’t get any TV Time. If a team has some TV Time, it increases their stock value to play in the NFL. There are also some rules that apply to both Division I and Division II teams. For example, Division I and II teams can’t receive benefits from an agent, or enter an agreement with an agent. The reason that this rule is made is because agents would have the most contact with an athlete, and would be able to obtain money from a boosters guy and the athlete would illegally receive the money. If the rule was changed so that sanctions would be softer on the crime, or players being paid was made legal, the rich schools would become the ultimate powerhouses, and the other schools would become obsolete, like what was discussed earlier. These big schools, like Texas or USC would take over college football and leave teams like TCU or Boise State behind. When you decide to pay players on a two-sport revenue generator, you have to decide who you’re going to pay, how much you’ll pay them, when you’ll pay them, and decide about which players don’t get paid. An offensive lineman may not get paid, and he makes the running back or the quarterback look like he carries the team. Does he deserve to get paid over the quarterback? The final thought that goes with this paper is, if we paid student-athletes, should we pay every sport, and if we do, do we give an equal amount to each player? You find your own opinion on the matter. How to cite NCAA Sanctions and Paying Players: Should This Be Allowed, Essay examples

Monroe Clock Company free essay sample

Jim Monroe, president of Monroe Clock Company, decided to sell a new household timing device. And this complete product would have to be sold through wholesalers and manufacturers’ representatives, which were new to Monroe Clock, so the price will be an important factor. Jim’s controller, Tom, had provided figures showing a full cost of $11. 60 and factory price of $14. 70, and Frank Tyler, his sales manager, had worked out a cost of $6. 30 excluding fixed overhead cost and factory price of $8. 00. So the main issue is about how much the timer is going to cost and how to treat the fixed overhead cost. There are three alternative implications for the price setting as follows: 1). If they decided to choose $8. 00 as factory price, the estimated retail selling price will be $16. 00, which is lower than the similar sears model $19. 98 and less than most of substitutions. And they will pretty soon get lots of volume, but once they get more sales, they fixed overhead will become more and more important. We will write a custom essay sample on Monroe Clock Company or any similar topic specifically for you Do Not WasteYour Time HIRE WRITER Only 13.90 / page For example, the company’s cost on machine maintenance, machine depreciation and plant administration (55%, 40% and 40% respectively) will increase. So if the company keeps long run using $6. 30 as cost excluding fixed overhead, they eventually will make less profit even no profit. 2). If they decided to choose $14. 70 as factory price, which certainly would make more contribution profit than $8. 00 because they had same variable costs. But the problem was that the similar Sears model was selling at $19. 98, and others were not more than a dollar or two away from that. So it would be difficult to attract consumers to buy their expensive new timer unless its exclusive new function was really useful. Other Consideration: Jim hadn’t figured out the value of the product options (a 48-hour or two different 24-hour cycles), which might have a lot more wiring and assembly work involved, and different timers may require more overhead. In addition, there were no other timers in the market, in other words, new timer might need different overhead than before. These all can contribute more overhead cost. 3). If they did as Tom recommended setting $8. 00 as factory price for the short run and then selling some smaller number of units at $14. 70. That may be appropriate for both short run and long run, but how to make consumers accept the $6. 70 ($14. 70-$8. 00) difference for the same product is a problem. Maybe company can use some marketing method or more advertising. * Recommendations: In my opinion, company can’t omit the fixed overhead cost so that making lower product cost. Because long run will make fixed overhead more important and more influenced to profit. So I think Jim should figure out the value of the product options and recompute the overhead rate and set the household timer’s cost including the fixed costs.