In addition, floating exchange rates may also give the government some flexibility with respect to the consumption function. The current issue with Greece and the euro illustrates this. Greece needs to spur economic growth in order to build a current account surplus that will help it to pay off its debt. In a floating exchange rate regime, Greece could do this by reducing the value of its currency, making Greek exports cheaper on world markets. This would bring in the necessary foreign capital. The Greek government, however, does not have control over its exchange rate as a member of the Eurozone. As such, it has no such flexibility to spur export growth. Indeed, Greek products are overpriced on the world market because costs in Greece are out of line with its economy. Although the euro is a floating currency, for the Greek government it is not because it cannot exert any real control over its movements. Thus, Greece is stuck with a high exchange...
As a result, the Greek economy is not going to have full employment any time soon. Indeed, because the crisis has been spurred by government debt, the government cannot increase spending to prop up domestic demand. Greece, by virtue of not having a currency whose float it can control, now lacks its two most powerful policy levers and therefore is powerless to bring its internal economy into balance.
China fixes the rate of its yuan to the dollar on a pegged float, where the float is minimal. This policy results in Chinese exports being underpriced, making them attractive in world markets (Dunaway, 2010). Two impacts of this policy are a strong export sector and a weak import sector, as foreign goods are very expensive in China. While China's economy is growing rapidly, the currency policy also facilitates
Finance Discuss some of the motivations firms have for setting up production facilities in other countries. Will the effect on the host country differ depending upon the motivation? Explain. Will the effect on the source country differ depending upon the motivation? Explain. What relationship might trade barriers (or the lack of trade barriers) have in determining a company's primary motivation for producing abroad? The reasons for the foreign investment are high profit
Cross-Country Capital Flows and Currency International Project overseas investment . GLOBAL INSTITUTES IN INTERNATIONAL FINANCE . INTERNATIONAL FINANCE CORPORATION . WORLD BANK . WORLD TRADE ORGANIZATION INTERNATIONAL MONTARY FUND . INTERNATIONAL FINANCE IN CHINA . BANKING INSTITUTES NON-BANKING INSTITUTES THE EXCHANGE RATE FIASCO FINANCIAL CRISIS IMPACTS ON SINO-AMERICAN RELATIONSHIP RECESSION'S AFFECT ON CHINA . ASIAN MONETARY FUND . CHINA'S TRADE POLICIES AND THEIR CONTRIBUTION TO THE FINANCIAL CRISIS Monetary policy is the study of circulation of money, the granting of credit, the making of investments and
The differences in culture with the American culture will meant the American staff that may go to help open the branches in China will have to take quite some time to learn the culture and the ways of the people there. The other difficulty will be the language barrier that may exists between the Americans and the Chinese. It may even call for a translator in the initial days as
Multinational Corporation (NNC) familiar. 1. Describe current trends impact globalization international financial management specific MNC choosing. 2. Explain basic functioning current arrangements flexible exchange systems dominate international monetary system affects specific MNC. Ford Motor Company The American automobile industry is currently facing the continued threats of the internationalized economic crisis. The demand for automobiles has decreased and this has not only been due to the crisis, but also due to the
In addition the continued decline of the fiscal account will affect both debt sustainability and external balances ("Monetary Policy Decision"). As it pertains to medium term fiscal sustainability which must be present to achieve necessary overall macroeconomic stability, the tax-GDP ratio must be increased ("Monetary Policy Decision"). Additionally government expenditures must decrease ("Monetary Policy Decision"). The article also reports that the revenue deficit, which represents the difference between total revenues
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