1. EXCHANGE RATE ( https://boycewire.

com/causes-and-effects-exchange-rate-definition/ )
1.What is an Exchange Rate

An exchange rate is the value by which two currencies are traded for one another. In other words, it is
the rate or value at which one currency can purchase another currency.

The exchange rate is important because it identifies the value between two or more nations’ goods and
services. It paves the way for international trade by sending a signal to the market the valuation of each
good. For example, without an exchange rate, the US would not know how much $1 is worth to
someone in China. Nor would the nation know how many goods or services it would be able to buy.

- the exchange rate is the evalue by which two curriencies can be traded one for another

- Fluctuations in the exchange rate can be triggered by factors such as interest rates, economic
performance, the trade deficit, or currency manipulation.

a. Causes of Exchange Rate Fluctuations

There are a number of factors that cause the exchange rate to fluctuate. Examples include – economic
performance, size of the trade deficit, currency manipulation/monetary policy, and interest rates. Each
plays an important part. Some more than others, but it can depend on a number of complex factors that
may not be immediately obvious.

* Currency Manipulation and Monetary Stimulus

It is difficult to tell the difference between currency manipulation and ‘monetary stimulus’. The action of
‘printing money’ is the same, but the motivation is different.

When a nation prints new money, its value declines because there is more of it. The increase in money
has to represent the same amount of goods and services in the economy. So it devalues the currency
not only abroad, but also at home. The main issue with identifying currency manipulation is whether
that is a nations original intention. For example, the ECB printed around €2.6 trillion before its recent
stimulus package in late 2019. Its aim was said to boost a failing economy. However, since its peak
against the dollar in late 2009, its value has crashed significantly. Starting at €0.67 to the dollar, it fell to
€0.91 by 2019. With the said, the monetary stimulus is but a part of the cause. It is a contributory factor,
but not necessarily the most important one. In this case, we can assume that the weakening of the
exchange rate was not manipulative, but it still has the same effect whether the intention was there or
not.

* Economic Performance

An economy that registers negative or even slow growth may face some level of capital flight. For
example, investors that see a struggling economy are often quick to move their money. This is because
when the economy is struggling, the returns on investment will be low. So investors move it to
somewhere where returns are higher. In turn, the exchange rate weakens as there is less demand for
that currency.

* Trade Deficits

When a nation has a trade deficit, it buys more from abroad than it sells. In other words, it is sending
money abroad to buy international goods, but foreign nations are not buying as much coming the other
way.

A trade deficit is where the nation import more than it exports

This represents a cash outflow from the country, which reduces the demand for its currency.
Subsequently, this decline in demand results in a weakening of the exchange rate.

* Interest Rates

The interest rate can play a big part in exchange rate fluctuations. Investors will always seek out the best
return on investment. As a result, those countries that offer relative safety and a higher interest will
attract greater levels of investment. At the same time, relative safety is also important – as investors
want to maximise their return whilst reducing risk. For example, nations such as the UK, the US, and
Japan offer safe places to invest, whilst the EUropean is also a relatively investor friendly area. By
investing in those nations and regions, the investor can be relatively comfortable that their investment is
safe.

When comparative interest rates go up, it provides a greater return on investment – meaning country A
now offers an extra 5 percent return on investment. However, interest rates only play a small role in the
grand scheme of things. Political factors and economic growth, are more effective at causing investment
shifts.

So when considering interest rates as a factor, we must consider it in line with others. For instance, the
Euro strengthened significantly in 2017 and 2018. Yet its base rate was set at 0 percent. At the same
time, the US increased its rate from 0.5 percent to 2.5 percent.

The Euro gained roughly 17 percent as a result despite comparative interest rates falling. The reason
was that the Eurozone experienced rapid economic expansion, whilst the US was experiencing political
tension with North Korea and China. So whilst interest rates can play a part, other factors can be more
influential in causing the exchange rate to fluctuate

2. Effects of Exchange Rate Fluctuations

* The Economy

When the exchange rate weakens, the domestic currency cannot buy as many goods from abroad, which
makes imports more expensive, and domestic goods cheaper.
Under such circumstances, consumers may start switching to cheaper domestic options, so fewer goods
are imported from abroad. This may provide a boost to domestic firms as exports are cheaper for
international consumers. The economy benefits from an increase in demand from abroad as its goods
are now cheaper. Exporters sell more goods and will need more employees to fulfill that demand,
thereby creating domestic employment and a boost to the overall economy.

At the same time, a strengthening exchange rate and currency could do the opposite. A stronger
domestic currency makes international goods cheaper, which makes imports more appealing and can
damage domestic firms. Yet there is also a benefit to cheaper imports. For example, having cheaper
goods come in from abroad gives consumers more income to spend on other goods within the economy.

* Consumers

When the exchange rate depreciates, imports become more expensive. So imported goods such as
bananas, motor vehicles, and oil/gas increase in price – meaning consumers are paying more for the
same number of goods.

By contrast, a strengthening currency makes for cheaper imported goods. However, consumers are also
workers, so a strengthening currency may also impact jobs. As exports become more expensive to the
international community, demand tends to decline, which could have a detrimental impact on industries
that rely heavily on exports.

* Business

Exchange rate fluctuations can cause businesses massive headaches – particularly small and
inexperienced firms.

When Business A in the US buys from Business B in China, Business B has two options. It can either
demand local currency, and risk the potential loss of a client, or, accept US dollars. Generally speaking,
most companies accept the buyers local currency rather than risk losing a sale. After all, it is preferable
to the client and poses less risk to them. However, the risk is then burdened by the producer of the
good.

* Foreign Direct Investment (FDI)

When the exchange rate weakens, it makes the domestic currency cheaper to other nations. So a
fluctuation that weakens the currency makes it cheaper for other nations to invest.

For instance, if the US dollar weakens against the Chinese Yuan, it means US consumers will receive
fewer goods in exchange for their money. This is because more US dollars are needed to buy the same
number of Yuans.

As a result, an investor from China will find it cheaper to invest in the US.

If we look at the chart below, it looks at the Euro to US Dollar exchange rate. As we can see, the Euro
strengthens significantly against the dollar between 2002 and 2008. At the same time, the US was also
losing value against other currencies. What happened was that Foreign Direct Investment became
cheaper for international companies, and we can see this have a direct positive effect on investment.

Sources: Euro-Dollar Exchange Rate : US Foreign Direct Investment

With that said, the exchange rate is not the only factor in FDI, but one contributory factor. So although
the exchange rate can influence it, it is not necessarily the sole cause.

Depending on the contract, the producer may wait 30 days for payment. As they generally get paid in a
foreign currency, it is possible for there to be some movements in the exchange rate. This has the
potential to cause some minor losses that could pile up if the local currency is in constant decline.

3. Types of Exchange Rate Systems

* Flexible or Floating Rate

The floating exchange rate is a relatively new system that started to gain traction in 1973 after the
collapse of the Bretton Wood Agreement. It simply allows the market to decide the value of the
currency through the supply and demand mechanism. In other words, the value of a currency in relation
to another can fluctuate.

Reactive

As we have seen previously, there are a number of variables that can influence the exchange rate. By
employing a floating rate, it allows other currencies to react. For instance, one nation may be printing
trillions in its local currency.

In turn, its value on the foreign exchange market would decline, whilst others strengthen. By contrast, a
fixed rate would keep the currency at the same rate. So one nation could print trillions and exchange it
for another currency at the same rate.

For example, both Nation A and Nation B have 1 trillion in currency, with a fixed exchange rate of 1.
However, Nation A prints another 500 million in currency. So Nation A has a total of 1.5 trillion
compared to Nation B’s 1 trillion.

However, because 500 million has been printed, inflation occurs and it can buy fewer products
domestically. In turn the 500 million from Nation A can be traded for 500 million from Nation B.
However, the purchasing power it has in Nation A is far less than Nation B. What a floating currency
does is reduce the impact that such monetary stimulus would have.

Stabilising Effect

A floating exchange rate allows countries to weather shocks more effectively. This is because when a
nation’s economy and aggregate demand declines, so too does the demand for its currency. In turn, a
weakening currency makes the nation more competitive in the international market.

Therefore the demand lost at home can be complemented by increased demand from abroad. As a
result, this helps soften the economic blow and boost domestic employment.

* Fixed-Rate

A fixed exchange rate is where one currency is ‘pegged’ to another currency or a commodity. In other
words, Currency A will be fixed at a rate of 2.5 to Currency B. So no matter whether interest rates
change, economic conditions change, or there is a trade deficit, that rate will remain the same.

If we look back to 1944, the US tied the dollar to gold under the Bretton Woods agreement. From 1944
until the agreement ended in 1971, the rate was held at $35 to an ounce of gold.

This provided the dollar with great strength as the currency had an underlying value. So anyone with a
dollar knew they could obtain gold with it. However, as the number of dollars in circulation increased,
the supply of gold did not keep up.
What happened as a result was there were many more US dollars than gold that it could be purchased
for. In other words, the US did not have enough gold to satisfy the promised exchange rate of $35 to one
ounce of gold.

* Managed Rate

A managed exchange rate is a kind of hybrid between a floating exchange and a fixed one. It allows the
currency to float on the market, however, it is subject to certain regulations. Some nations may look to
implement strict limits. For instance, the exchange rate between the US dollar and the Chinese Yuan
may be set between 6 to 7.

What is exchange rate used for?

The exchange rate is used to swap one currency for another. It is also a useful indicator to determine
how well an economy is doing. For instance, a strong currency is generally associated with a strong and
growing economy, whilst a weak currency is associated with a weak economic outlook.

2. INTERNATIONAL TRADE
1. Free Trade Definition (https://www.thoughtco.com/free-trade-definition-theories-4571024
)

Free trade is a largely theoretical policy under which governments impose absolutely no tariffs,
taxes, or duties on imports, or quotas on exports. In this sense, free trade is the opposite of
protectionism, a defensive trade policy intended to eliminate the possibility of foreign
competition.  

In reality, however, governments with generally free-trade policies still impose some measures
to control imports and exports. Like the United States, most industrialized nations negotiate
“free trade agreements,” or FTAs with other nations which determine the tariffs, duties, and
subsidies the countries can impose on their imports and exports. For example, the North
American Free Trade Agreement (NAFTA), between the United States, Canada, and Mexico is
one of the best-known FTAs. Now common in international trade, FTA’s rarely result in pure,
unrestricted free trade.

* Free Trade Theories

Since the days of the Ancient Greeks, economists have studied and debated the theories and
effects of international trade policy. Do trade restrictions help or hurt the countries that impose
them? And which trade policy, from strict protectionism to totally free trade is best for a given
country? Through the years of debates over the benefits versus the costs of free trade policie to
domestic industries, two predominant theories of free trade have emerged: mercantilism and
comparative advantage.

Mercantilism

Mercantilism is the theory of maximizing revenue through exporting goods and services. The
goal of mercantilism is a favorable balance of trade, in which the value of the goods a country
exports exceeds the value of goods it imports. High tariffs on imported manufactured goods are
a common characteristic of mercantilist policy. Advocates argue that mercantilist policy helps
governments avoid trade deficits, in which expenditures for imports exceeds revenue from
exports. For example, the United States, due to its elimination of mercantilist policies over time,
has suffered a trade deficit since 1975. 

Dominant in Europe from the 16th to the 18th centuries, mercantilism often led to colonial
expansion and wars. As a result, it quickly declined in popularity. Today, as multinational
organizations such as the WTO work to reduce tariffs globally, free trade agreements and non-
tariff trade restrictions are supplanting mercantilist theory.

Comparative Advantage

Comparative advantage holds that all countries will always benefit from cooperation and
participation in free trade. Popularly attributed to English economist David Ricardo and his 1817
book “Principles of Political Economy and Taxation,” the law of comparative advantage refers to
a country’s ability to produce goods and provide services at a lower cost than other countries.
Comparative advantage shares many of the characteristics of globalization, the theory that
worldwide openness in trade will improve the standard of living in all countries.

Comparative advantage is the opposite of absolute advantage—a country’s ability to produce

more goods at a lower unit cost than other countries. Countries that can charge less for its .

2. Advantages & Disadvantage of International Trade:

(https://www.yourarticlelibrary.com/international-trade/advantages-and-
disadvantages-of-international-trade/42100 )
* Advantage

(i) Optimal use of natural resources:

International trade helps each country to make optimum use of its natural resources. Each
country can concentrate on production of those goods for which its resources are best suited.
Wastage of resources is avoided.
(ii) Availability of all types of goods:

It enables a country to obtain goods which it cannot produce or which it is not producing due to
higher costs, by importing from other countries at lower costs.

(iii) Specialisation:

Foreign trade leads to specialisation and encourages production of different goods in different
countries. Goods can be produced at a comparatively low cost due to advantages of division of
labour.

(iv) Advantages of large-scale production:

nternational trade has endless advantages which include:

• Optimal Use Of Natural Resources

With international trade, every country is able to optimally use its natural resources. This
enables each country to entirely concentrate on producing goods suited for its resources.

This helps in reducing and completely avoiding wastage of resources. When natural resources
are used properly, it boosts the economic growth of the country.

• Specialisation
International trade results to specialisation as well as encouraging production of varieties of
goods in various countries.

Since specialisations result in the division of labour, the cost of producing goods can be
relatively low leading to more production and high profits in return.
• Goods Availability
International trade enhances the availability of different types of goods in the market. In this
scenario, a country is able to get goods which it’s not capable of producing or which it can’t
produce due to relatively high cost through importation from the producing countries at lower
cost.

• Large Scale Production

International trade makes a country to produce in large scale not only to feed its citizen but also
for exportation to other countries.

This enables countries to dispose of the surplus goods they have in the international market. As
a result, many countries adopt large scale production, which leads to advantages of large
productions being obtained across the globe.

• Prices Stability
Due to international trade, wild fluctuations of prices are ironed completely. This enables
equalisation of prices of goods worldwide ignoring other factors such as transportation among
others.

* Disadvantages of International Trade

Regardless of the many advantages international trade boast of, there are some disadvantages
associated with it among them include:
• Economic Dependence
Underdeveloped countries most rely on the already developed countries to achieve their
economic development goals. In such kind of reliance, developed countries take advantage and
exploit underdeveloped countries economically.

A good example is whereby many of underdeveloped countries Africa, as well as Asia, have
been taken advantage of by European countries and exploited beyond the limit.

• Hindering Home Industries Development

International trade poses a big threat towards the development of home industries, thus
hindering their growth leading to collapsing.

This is facilitated by stiff competition as well as unrealistic imports which takes over the local
market with cheap goods resulting in death of home industries.

• Political Dependence
Slavery and subjugation are among the things encouraged by international trade. In this case,
country’s economic independence is impaired which also endangers political dependence.

A good example is whereby Britains went to India just as traders, but they eventually ruled over
India for decades.

Conclusion
Advantages and disadvantages of international trade are endless. The discussed above are just
a tip of the iceberg. International trade is engulfed by many advantages and disadvantages at
equal measure.

However, there is no time international trade will cease to exist since countries can’t be able to
produce all types of goods, meaning they must engage in international trade so that they can
import what they lack.

3. ECONOMICS AND ECOLOGY

1. How Does Global Warming Affect The Economy? (

https://www.forbes.com/sites/quora/2017/07/13/how-does-global-warming-affect-the-economy/?
sh=6dfbc08234a1 )

Global warming affects the geography within which the global economy operates. It changes
growth zones. It changes shorelines. It changes the places where humans will feel comfortable
living. In addition, if humans actually decide to do anything about it, it will change the way
industry and people use fossil fuels.
* Growth Zones
As the planet warms, the average temperature of each location will rise. This means the
microhabitats where each species of plant does well, will move. Sometimes they will move
towards the poles of the earth. Sometimes they will disappear, and the species will die out.

* Shorelines

As the ocean levels rise, the existing shorelines will change. Of course, in geological time,
shorelines have changed many times in the billions of years that earth has existed. However,
human time is a much smaller scale. We’ve probably caused environmental change in the past,
in Mesopotamia and the Sahara, which were lusher areas a couple of millenniums ago, but are
now desert.

Humans have always been adaptable creatures, so as the ocean levels rise, many areas along
the ocean shores where we live will end up being under water. This will necessitate new types
of homes or possibly migration.

In terms of economic impact, people are probably going to have to migrate. This will mean a lot
of new home construction. It may also mean deconstruction, as well, depending on how
humans feel about letting the oceans destroy things, or about cleaning up after ourselves.

Cities on the shore will have to invest heavily in dikes and other water management systems,
the way Venice and the Netherlands have already done. In fact, the places that have been
dealing with water issues already and the companies that have the technologies to deal with
these issues are probably companies to invest in for the long term.

In any case, humans will migrate or protect their existing investments. This will create demand
for new construction. It will also increase competition for property in desirable areas, but new
desirable areas will open up with global warming. If you want to take advantage of this, buy
property in Canada and Siberia now, if you can.

* Industry

Human productivity has been constantly increasing over human history. This means that we
have been able to make more using less resources. The need to reduce the use of fossil fuels
will put more pressure on industry to become more energy efficient. This will be especially true
if we can find a way to get industry to pay for the cost of energy profligacy up front, instead of
socializing the cost at the back end.

I can’t tell how much economic incentive there will be for efficiency. Will people be more
interested in using resources, especially fossil fuels, more efficiently simply because this drives
down the cost of using products? Energy efficiency has been a driver of economic change for
decades now, but will it be a more important driver now that people are becoming more
concerned with the impact of global warming?

As the world heats up, there will be more demand for air conditioning. That will use more
energy, and it could drive up the use of fossil fuels. However, the price of fossil fuels has been
decreasing lately, as humans have developed more and more resources. There was a boom in
shale oil for a little while, but then there was so much of it, that oil prices dropped, making
shale oil no longer profitable. Still, all that oil is still there, waiting for the prices to make it
worth drilling for.

* Technology

Global warming may create a demand for new technology that helps capture carbon dioxide
and methane. I recently heard that in Siberia, there is a huge amount of methane that will start
outgassing as the planet warms. Methane is even more effective at keeping warmth in than
carbon dioxide, so once the methane starts outgassing, we may start warming even faster.

However, I’m sure that humans will develop technologies to try to capture the outgassing
methane, since it will be a valuable resource. So perhaps global warming will make energy from
fossil fuels even cheaper as it increases the supply. Maybe we’ll develop technologies to harvest
methane from the atmosphere.

Another source of energy that will continue to grow is energy produced from renewable
resources such as wind, tides, geothermal sources and the sun. If it takes more energy to
manage the impact of global warming, humans will probably be able to harvest that energy in
one way or another.

I believe that new technologies will be created to solve the problems that global warming
creates. Humans are quite adaptable, and the money to be made as a result of the impact of
global warming will be enormous. With human migration increasing as old land becomes
unlivable due to heat or rising oceans, new lands will become more livable, and people will
migrate to live in these newly more livable places.

* Migration

Migration will cause political conflicts, but it won’t be stopped. If any country tries to keep
people out, people will either sneak around, or attack if the need to migrate is strong enough.
Hopefully humankind will find ways to manage the migration sensibly instead of fighting about
it, but I doubt that will happen. Although it seems likely that places like Canada and Siberia will
welcome the influx of people, since that will make them more powerful nations.
*Global Economy
Global warming will bring new challenges to human beings, and I think that issues related to
migration will be the largest driver of economic change. There will be a new economic sector
built around the issues of migration, including managing migration, transportation,
construction, and so on. Many of these things will be no different from the way they are now.
Global warming will just change the geographic location of the need for goods and services.

Humans thrive on work, it seems. There will be plenty of work that will have to be done to cope
with the human dislocation that global warming will bring. People will do this work. And if there
aren’t enough people, then machines will do it.

With birth rates slowing around the world, we may run into a time of underpopulation instead
of overpopulation. This probably sounds like a crazy idea to most people, but some
demographers think this will happen, and I believe it is likely to happen. As technology
improves around the world, birth rates will decline pretty dramatically. This will happen a lot
faster than anyone currently projects, in my estimation. Reduced birth rates may ameliorate
the migration issues associated with global warming.

There seems to be some belief that global warming will have a catastrophic effect, making it
impossible for humankind to survive. I don’t know where this catastrophe will come from. I
think humans will adapt to global warming. We are very adaptable. We will develop the
economic infrastructure necessary to keep ourselves alive and thriving.

People will have to move. Some parts of the world will become less desirable, if not
uninhabitable. But other parts of the world will become more desirable, and people will move
to these areas, and life will probably go on, pretty much as it has been, only we will be richer
and have more choices available to us.

I don’t think global warming will have a catastrophic effect on humankind. It will affect us, but
we will adapt. We will change our environment, but not so much that we can’t live on this
planet. Eventually, we’ll figure out how to manage the global environment in a more accurate
way. Then we’ll have all kinds of political battles over what the best way to change the
environment is.

2. Solutions to Global Warming ( https://www.climatehotmap.org/global-warming-

solutions/)

*Boosting energy efficiency:

The energy used to power, heat, and cool our homes, businesses, and industries is the single
largest contributor to global warming. Energy efficiency technologies allow us to use less energy
to get the same—or higher—level of production, service, and comfort. This approach has vast
potential to save both energy and money, and can be deployed quickly.

* Greening transportation:

The transportation sector's emissions have increased at a faster rate than any other energy-
using sector over the past decade. A variety of solutions are at hand, including improving
efficiency (miles per gallon) in all modes of transport, switching to low-carbon fuels, and
reducing vehicle miles traveled through smart growth and more efficient mass transportation
systems.

* Revving up renewables:

Renewable energy sources such as solar, wind, geothermal and bioenergy are available around
the world. Multiple studies have shown that renewable energy has the technical potential to
meet the vast majority of our energy needs. Renewable technologies can be deployed quickly,
are increasingly cost-effective, and create jobs while reducing pollution.

* Phasing out fossil fuel electricity: Dramatically reducing our use of fossil fuels—especially
carbon-intensive coal—is essential to tackle climate change. There are many ways to begin this
process. Key action steps include: not building any new coal-burning power plants, initiating a
phased shutdown of coal plants starting with the oldest and dirtiest, and capturing and storing
carbon emissions from power plants. While it may sound like science fiction, the technology
exists to store carbon emissions underground. The technology has not been deployed on a
large scale or proven to be safe and permanent, but it has been demonstrated in other contexts
such as oil and natural gas recovery. Demonstration projects to test the viability and costs of
this technology for power plant emissions are worth pursuing.

* Managing forests and agriculture: Taken together, tropical deforestation and emissions from
agriculture represent nearly 30 percent of the world's heat-trapping emissions. We can fight
global warming by reducing emissions from deforestation and forest degradation and by
making our food production practices more sustainable.

* Exploring nuclear: Because nuclear power results in few global warming emissions, an
increased share of nuclear power in the energy mix could help reduce global warming—but
nuclear technology poses serious threats to our security and, as the accident at the Fukushima
Diaichi plant in Japan illustrates to our health and the environment as well. The question
remains: can the safety, proliferation, waste disposal, and cost barriers of nuclear power be
overcome?
* Developing and deploying new low-carbon and zero-carbon technologies: Research into
and development of the next generation of low-carbon technologies will be critical to deep
mid-century reductions in global emissions. Current research on battery technology, new
materials for solar cells, harnessing energy from novel sources like bacteria and algae, and
other innovative areas could provide important breakthroughs.

* Ensuring sustainable development: The countries of the world—from the most to the least
developed—vary dramatically in their contributions to the problem of climate change and in
their responsibilities and capacities to confront it. A successful global compact on climate
change must include financial assistance from richer countries to poorer countries to help make
the transition to low-carbon development pathways and to help adapt to the impacts of climate
change.