Exchange Rate Literature Review

Writing a literature review on exchange rates can be a daunting task for many researchers and
students alike. It requires thorough research, critical analysis, and synthesis of existing literature to
provide a comprehensive understanding of the topic. The complexity of exchange rate dynamics,
coupled with the vast amount of literature available, makes this task particularly challenging.

One of the key difficulties in writing a literature review on exchange rates is navigating through the
vast array of academic papers, journals, books, and other sources available on the subject. The
literature on exchange rates spans various disciplines including economics, finance, international
relations, and mathematics, making it necessary to sift through diverse perspectives and
methodologies.

Furthermore, the dynamic nature of exchange rates means that new research is constantly being
published, adding to the already extensive body of literature. Keeping up with the latest
developments and incorporating relevant studies into a literature review requires both time and
expertise.

Another challenge is ensuring coherence and organization within the literature review. With
numerous studies offering different insights and conclusions, it can be challenging to synthesize the
information in a way that presents a clear and logical argument. Structuring the review to highlight
key themes, debates, and gaps in the literature requires careful planning and critical thinking.

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Operating a floating exchange rate system can avoid the exchange rate becoming a target. B) At
certain times a country's currency may be strong. Please read the original authored by Douglas
Campbell, published in. Changes in the exchange rate affect producers, importers and exporters,
investors, consumers, tourists and others. The advantages of fixed exchange rate systems include the
elimination of exchange rate risk, at least in the short run. Review Questions. Are short - sellers in
Japan different from short - sellers in the rest of the world. Firms often use the currency markets to
hedge against large fluctuations in the exchange rate, which helps to a certain extent, but there is still
felt to be too much uncertainty. A floating exchange rate is referred to automatically adjust by
movement in the exchange rate, but this greater freedom also brings some dangerous elements. A
nation with fixed exchange rates must enforce those rates. Interest rates are the other factor which
can influence the exchange rate. If there is an increase in demanding pounds, the equilibrium price is
likely to change. International exchange rates show how much one unit of a currency can be
exchanged for another currency. Low exchange rate makes the balance of goods and services in
equilibrium or in surplus. Moreover, its exports are cheaper in terms of foreign currency and its
imports are more expensive in terms of its own currency. When the county' fixed rate is well below
its true market of exchange, it faces a persistent surplus and if its fixed rate is well above its true
market, it faces a persistent deficit. It also can reduce the uncertainly of exchange rate. If countries
with surpluses move their value of exchange rates higher, it will be revalue, if countries with deficit
decrease their value of exchange rate, it will be devaluation. Their actions were effectively charged
by German, the most powerful member of the system. And usually, exports are dearer in the
condition of devaluation. There are some possible costs of joining the single currency Transaction
costs, which include psychological costs, for example, resistance to change, which the elderly usually
experienced more, and the costs of changing tills and staff training, are included in financial costs.
Upload Read for free FAQ and support Language (EN) Sign in Skip carousel Carousel Previous
Carousel Next What is Scribd. To defend a particular rate, they may need to resort to central bank
intervention, the imposition of tariffs or quotas, or the placement of restrictions on capital flow. Bad
Times”, Helsinki Center of Economic Research, Discussion Paper No. 207. MSc Student: Maria-
Magdalena Stoica Supervisor: Professor PhD. It is guaranteed and totally controlled by the
government. The Gold Standard The gold standard system worked reasonably well during the s, but
it was gradually disbanded during the twentieth century. As it shows in figure1.3 that there is an
increase in demand for imports, then lead the supply curve to shift right from S to S'. Investment
clubs have been around for several decades and are simply groups of people who get together to
invest. When people in the UK try to buy US goods and services they will supply pounds to US,
however, when people from US try to by UK goods and services they will demand UK pounds.
That’s because something like the Asian Financial Crisis could cripple the industrial (tradable) sector
and also lead to a severe currency depreciation.
Euro members still have part independence on controlling the fiscal policy. Before make the decision
speculators will always take risks in a forward markets. The last advantage of a floating exchange rate
system is that, the exchange rate in a floating exchange rate system changes relatively smooth than
that of fixed exchange rate. With a freely floating currency, a deteriorating trade situation should
automatically cause the currency to fall. Apart from being expensive, some countries may find it
hard to get their hands on sufficient stocks of reserves to support their currency. Although floating
exchange rate is mainly affect by market forces, actually sometimes a nation's central bank try to
influence the exchange rate. The euro ? is the European single currency which came to use on 1
January 1999.Eleven EU members joined which are Austria, Belgium, Finland, German, Ireland,
Italy, Luxembourg, Netherlands, Portugal and Spain. And if a country's domestic inflation at a
slower pace than that of foreign inflation, it will result in appreciation of domestic currency in the
long run. A fixed exchange rate is a kind of currency whose value has fixed against another or other
currencies. In order to keep a currency at a fixed value, the central bank must prepare to buy and sell
the currency at the fixed price. And the currency is not allowed to appreciate or depreciate against
each other. As the exchange rate between pound and dollar for example, the price of pound in terms
of dollar would decided by the demand for pounds from whom hold dollars and the supply of
pounds from sterling holder who want to buy dollars. MSc Student: Maria-Magdalena Stoica
Supervisor: Professor PhD. As speculators for example, they work in the foreign exchange markets
around the world and their main job is to make money by trying to predict the movements of
currencies. Actually, when I began working on RERs and manufacturing employment, I could see
that this literature had already become quite dated. When people in the UK try to buy US goods and
services they will supply pounds to US, however, when people from US try to by UK goods and
services they will demand UK pounds. If the government is not controlling their exchange rate, then
they can control their rate of interest. In truth, the answer is that I also couldn’t really find good,
modern work that takes identification seriously (if you know of some, please add in the comments.
A floating exchange rate is referred to automatically adjust by movement in the exchange rate, but
this greater freedom also brings some dangerous elements. When firms and individuals move
themselves or goods and services from one EU country to another they do not need to pay the extra
money for change currencies. To solve the problem of deficit under a fixed exchange rate system, the
most likely measure to reduce imports and encourage exports is to raise prices of the domestic
market. If the value of a county' imports are greater than its exports, the supply of its currency will
exceed the demand for it. In theory, if a currency is freely floating, then there is no need for
government to use reserves to affect its value. Low exchange rate makes the balance of goods and
services in equilibrium or in surplus. A floating exchange rate may make production planning very
difficult when there is a constant change for the external prices of domestically-produced goods.
Pegged Exchange Rate System A pegged exchange rate system is a hybrid of fixed and floating
exchange rate regimes. The Wage Rate, Growth of Government Intervention, and Continuity and
Change. Existing theories explain the movement of the exchange rate rather than the determination
of the rate initially. As an American buys a British Rover for example again, this is a kind of export
for UK product. Most EU countries had to remain their interest rate above that of Germany's prior to
the formation of the single currency, in order to prevent founds flowing to Germany.
As it shows in figure1.3 that there is an increase in demand for imports, then lead the supply curve to
shift right from S to S'. If there is a rise in interest, UK will have a greater impact on its borrowers.
When people in the UK try to buy US goods and services they will supply pounds to US, however,
when people from US try to by UK goods and services they will demand UK pounds. If much of the
country's debt foreign exchange rate systems denominated in other currencies, the choice of which
currency to binary options and gambling it to becomes more complicated. As UK for example, it has
so much differences from the rest of the EU- it is a second most importer exporter of services in the
world and it has the most trades than other EU members. It is defined as the rate at which one
currency can be converted, or 'exchanged', into another currency. However, it can not happen under
the fixed exchange system. Also, given changes in economic fundamentals, the target exchange rate
may be modified. Exchange rate reflects the bilateral quantitative relation between two sovereign
currencies. There are four types of currencies can be operated, which are a floating, managed and
fixed exchange rate. Compared with the floating exchange rate, there is an advantage that if imports
prices rise the stability for domestic prices will not be broken. Latest Videos PeerStreet Offers New
Way to Bet on Housing New to Buying Bitcoin. The exchange rate depends on the balance of
payments and its accounts. For example, when the UK came out of the Exchange Rate Mechanism in
September 1992, this allowed UK to cut in interest rates which helped to pull the economy out of a
recession. And usually, exports are dearer in the condition of devaluation. As the exchange rate
between pound and dollar for example, the price of pound in terms of dollar would decided by the
demand for pounds from whom hold dollars and the supply of pounds from sterling holder who
want to buy dollars. As speculators for example, they work in the foreign exchange markets around
the world and their main job is to make money by trying to predict the movements of currencies. At
this time, the price which keeps the demand and supply force in balance is the exchange rate between
pound and dollar. Read more on the Gold Standard's rise and fall in the following article: The Gold
Standard Revisited A nation operating under a fixed exchange rate system pegged to the dollar that
experiences a balance of payments deficit will be forced to finance the deficit out of its dollar
reserves. Of course, it has also been noted that a floating exchange rate does not always keep balance
of trade in the real world because so few currency transactions are for trade. The Wage Rate, Growth
of Government Intervention, and Continuity and Change. It is guaranteed and totally controlled by
the government. According to SJ Grant's book 'STANLAKE'S INTRODUCTORY ECONOMICS'
1999 in page494, the criteria are as follows, The government budget deficit must not exceed 3% of
GDP Government debt must not be more than 40% of GDP a stable inflation rate, and one which
for at least a year before membership is no more than 1.5% points above the average of the three
member countries with the lowest inflation rates. The ERM which stands for the exchange rate
mechanism is an example of a managed exchange rate. With the CAGR of X.X%, this market is
estimated to reach USD XX million in 2026. A high exchange rate certainly can encourage foreign
direct investment. It is fundamentally for preventing large fluctuations relative to European Union's
(EU) countries' currencies. With a fixed exchange system, a country may face a persistent surplus or
deficit. The biggest disadvantage of floating exchange rate systems is their uncertainty. Wonder why
some currencies fluctuate while others are pegged.
Moreover, its exports are cheaper in terms of foreign currency and its imports are more expensive in
terms of its own currency. There must be a convergence of European business cycles and economic
structure. The euro ? is the European single currency which came to use on 1 January 1999.Eleven
EU members joined which are Austria, Belgium, Finland, German, Ireland, Italy, Luxembourg,
Netherlands, Portugal and Spain. To defend a particular rate, they may need to resort to central bank
intervention, the imposition of tariffs or quotas, or the placement of restrictions on capital flow. Then
it will not hold reserves of foreign currency. The Wage Rate, Growth of Government Intervention,
and Continuity and Change. In truth, I suspect that probably more than half of published research is
straight wrong. A floating exchange rate is referred to automatically adjust by movement in the
exchange rate, but this greater freedom also brings some dangerous elements. If inflation rises above
its target rate of 2%, the ECB will change its monetary policy. Existing theories explain the
movement of the exchange rate rather than the determination of the rate initially. Price of currency in
Euros D' S D S' Upper margin Lower margin D' S D S' Figure 1.2 A fixed exchange rate is a kind of
currency whose value has fixed against another or other currencies. I think part of this stems from a
certain gullability, and over-confidence among certain economists in their profession. If UK's
inflation at a faster space than US, which means that its RPI Retail Price Index is higher, for
instance, the same value of goods or services in UK cost more than that of US, its also means that
US has an absolute advantage in international trade with UK. The exchange rate depends on the
balance of payments and its accounts. I’m still contemplating doing a paper on this, although I’m
sure I’d have a lot of similar pushback. (“This result is not new.”) The big issue in this literature is
identification. Upload Read for free FAQ and support Language (EN) Sign in Skip carousel
Carousel Previous Carousel Next What is Scribd. Thus, the raw correlation between trade and the
RER could be negative, positive, or zero in the aggregate. Finally, a floating exchange rate may
increase speculation through a certain level of buying or selling. If it in surplus the export prices will
be low in term of foreign currency and import price high in terms of domestic currency. The biggest
disadvantage of floating exchange rate systems is their uncertainty. US CFTC Draft Definition, May
2012: High frequency trading is a form of automated trading that employs. Also, exchange rate
stability provides a realistic basis for expectations. A pegged currency can give a country many
advantages, but these advantages come at a price. This changing as a result of currency values
changing. They buy when they think the value of currency is going to rise and sell when they think it
is going to fall. If countries with surpluses move their value of exchange rates higher, it will be
revalue, if countries with deficit decrease their value of exchange rate, it will be devaluation. Firms
often use the currency markets to hedge against large fluctuations in the exchange rate, which helps
to a certain extent, but there is still felt to be too much uncertainty. In that case, the government can
not set interest rates at whatever level they want. In order to keep a currency at a fixed value, the
central bank must prepare to buy and sell the currency at the fixed price. To deal with a persistent
surplus, government can increase home demand in order to encourage import, or raise home price to
make export less competitive.
Outline the problems which both of these situations pose to government. So the home economy can
not be isolated from the external forces. The long term interest, which for at least a year before
membership does not exceed 2% point above the average of those countries with the lowest
inflation. Theoretical considerations 5. Model 6. Data construction and analysis 7. A fixed exchange
rate is a kind of currency whose value has fixed against another or other currencies. Moreover, its
exports are cheaper in terms of foreign currency and its imports are more expensive in terms of its
own currency. According to this figures, it is easy to find that Chinese bank interest rate is the
highest among all. Also, high interest rate is likely to attract more speculators and investors. As it
shows in figure1.3 that there is an increase in demand for imports, then lead the supply curve to shift
right from S to S'. Because there is nothing can devalue if increasing inflation leads to reduced
competitiveness. B) At certain times a country's currency may be strong. Relatively, the prices of
some consumer products fall the wage claims will be improved. It is guaranteed and totally
controlled by the government. It also can reduce the uncertainly of exchange rate. As Japan ? for
example, If US exchange rates are higher than Japan domestic rates, it is likely to have an outflow of
funds such as a capital inflow to earn a greater interest income than in Japan domestic market. Debt
Sustainability and the Exchange Rate: The Case of Turkey. This changing as a result of currency
values changing. Misalignment can happen if joining in a single currency. Duties to Employers,
Standard IV-A: Additional Compensation Arrangements 1. As the exchange rate between pound and
dollar for example, the price of pound in terms of dollar would decided by the demand for pounds
from whom hold dollars and the supply of pounds from sterling holder who want to buy dollars. If a
paper is published in a good journal, then that’s the end of the story. Price of currency in Euros D' S
D S' Upper margin Lower margin D' S D S' Figure 1.2 A fixed exchange rate is a kind of currency
whose value has fixed against another or other currencies. The inflation rate also affects a country
exchange rate value. The exchange rate depends on the balance of payments and its accounts. If the
value of a county' imports are greater than its exports, the supply of its currency will exceed the
demand for it. Finally, a floating exchange rate may increase speculation through a certain level of
buying or selling. Improving or deteriorating preferences for foreign goods will be likely lead to.
Progress towards MDGs: inadequate Trend in Under-Five Deaths, 1960-2015 (Millions deaths per
year) Growth is not enough. And usually, exports are dearer in the condition of devaluation. As it
shows in figure1.6, when one pound equals one and a half dollars, the price is in equilibrium. Figure
1.6 The floating exchange rate has several advantages.
The price drops make the nation's goods more competitive internationally; the higher interest rates
also cause more capital to flow into the country. Central banks and financial institutions hold large
amounts of foreign money as their reserve currency. As an American buys a British Rover for
example again, this is a kind of export for UK product. In a floating exchange rate system rise import
prices may broke the stability of domestic price. When people in the UK try to buy US goods and
services they will supply pounds to US, however, when people from US try to by UK goods and
services they will demand UK pounds. In truth, I suspect that probably more than half of published
research is straight wrong. It is guaranteed and totally controlled by the government. The inflation
rate also affects a country exchange rate value. Fixed Income Investments The Tradeoff Theory of
Leverage The Business Cycle The Industry Life Cycle Intramarket Sector Spreads Calls and Puts
American Options and Moneyness Long and Short Call and Put Positions Covered Calls and
Protective Puts. For example, when the value of pounds falls more than the dollar price of cotton,
then the dollar price of cotton falls while the price of cotton for UK importer rises. If a government is
confident that a floating exchange rate system can keep a balance of payments in balance. In order to
lower the price of the currency, the country may take actions such as raising its domestic interest
rates or buy its own currency. Bad Times”, Helsinki Center of Economic Research, Discussion Paper
No. 207. Operating a floating exchange rate system can avoid the exchange rate becoming a target.
Adam Mickiewicz University in numbers: 400 years of tradition 14 departments. The exchange rate
depends on the balance of payments and its accounts. A high exchange rate certainly can encourage
foreign direct investment. There must be sufficient flexibility for the system to cope with economic
change and shocks. Price of currency in Euros D' S D S' Upper margin Lower margin D' S D S'
Figure 1.2 A fixed exchange rate is a kind of currency whose value has fixed against another or other
currencies. Changes in the exchange rate affect producers, importers and exporters, investors,
consumers, tourists and others. The Wage Rate, Growth of Government Intervention, and Continuity
and Change. Before considering joining the single currency the UK Labour government has set five
conditions to meet, as it mentions in SJ Grant's book 'STANLAKE'S INTRODUCTORY
ECONOMICS' 1999, page 496, they are Membership must be expected to create better conditions
for companies to invest in the UK The effect on the UK's financial services industry would have to
be beneficial. In truth, the answer is that I also couldn’t really find good, modern work that takes
identification seriously (if you know of some, please add in the comments. It is guaranteed and
totally controlled by the government. And it also keeps production cost at a low level when prices of
imported raw materials are low. Country's balance between exports and imports also affect the
foreign exchange value of a country's currency. This causes prices to drop and interest rates to
increase. The exchange rate can move a long way if speculators think that it is at the wrong level and
this is harm for a country's economy. Adam Mickiewicz University in numbers: 400 years of tradition
14 departments. The imports will be dearer due to the depreciation of the currency, and the dearer
imports could lead to cost inflation.
To defend a particular rate, they may need to resort to central bank intervention, the imposition of
tariffs or quotas, or the placement of restrictions on capital flow. The demand curve will shift from D
to D', In order to buy these pounds the supply of dollars will have to rise. Apart from being
expensive, some countries may find it hard to get their hands on sufficient stocks of reserves to
support their currency. As an American buys a British Rover for example again, this is a kind of
export for UK product. When people in the UK try to buy US goods and services they will supply
pounds to US, however, when people from US try to by UK goods and services they will demand
UK pounds. It is fundamentally for preventing large fluctuations relative to European Union's (EU)
countries' currencies. And the interest rates do not have to be set to keep the value of the exchange
rate within a certain bands. But In the real world, it is very likely to have an emergency in the
balance of payments; in order to deal it government will always have some reserves. Interest rates are
the other factor which can influence the exchange rate. Investment clubs have been around for
several decades and are simply groups of people who get together to invest. In order to lower the
price of the currency, the country may take actions such as raising its domestic interest rates or buy
its own currency. Firms can avoid the money paid for European suppliers or the amount they will
earn from European countries. There are possible benefits for countries who join the single currency
It can reduce the transaction cost. And the currency is not allowed to appreciate or depreciate
against each other. With a fixed exchange system, a country may face a persistent surplus or deficit.
If there is an increase in demanding pounds, the equilibrium price is likely to change. If the
government is not controlling their exchange rate, then they can control their rate of interest. For
example, as it illustrated in figure 1.4(A) (B), if an American buys a British Rover, there will be an
increase in the demand curve for pounds. International exchange rates show how much one unit of a
currency can be exchanged for another currency. Not all the EU members can get benefit form an
exchange rate or interest rate. Improving or deteriorating preferences for foreign goods will be likely
lead to. Please read the original authored by Douglas Campbell, published in. Exchange rate reflects
the bilateral quantitative relation between two sovereign currencies. To deal with a persistent deficit,
government can reduce the home demand or decrease home price to make export more competitive.
Relatively, the prices of some consumer products fall the wage claims will be improved. Compared
with the floating exchange rate, there is an advantage that if imports prices rise the stability for
domestic prices will not be broken. As the exchange rate between pound and dollar for example, the
price of pound in terms of dollar would decided by the demand for pounds from whom hold dollars
and the supply of pounds from sterling holder who want to buy dollars. And the currency is not
allowed to appreciate or depreciate against each other. A country has to meet certain criteria if it
wants to join the single currency.