Characteristics and methods of exchange rate determination

Maintenance of foreign trade in goods and services, international movement of capital, transfer of profits from one country to another, foreign loans and grants as the objectives of currency. The difference of international transactions on domestic.

Рубрика Экономика и экономическая теория
Вид контрольная работа
Язык английский
Дата добавления 22.10.2015
Размер файла 9,1 K

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Introduction

Doctor of economic Sciences, Professor Gennady Ovchinnikov as the most important problem that studying international macroeconomics, calls the question of what determines the change in foreign exchange rates and the balance of payments of the country.

In this regard, become topical questions such as:

· clarification of the concept of the exchange rate;

· determine the value of the exchange rate;

· ratio and real exchange rates.

The aim of this work is to disclose the terms of the exchange rate, and nominal and real exchange rate.

To achieve this goal it is necessary to solve the following tasks:

· expand the notion of exchange (currency) rate;

· to show its value to the economy, internal and external;

· expand the concepts of nominal and real exchange rate;

· show the correlation between real and nominal exchange rate.

1. Exchange rate: concept, nature, importance

Despite the fact that in modern conditions there is still a barter trade, the General rule is the expression of the prices of goods in national currency. In the Republic of Belarus is the Belarusian ruble, the US dollar, the EU Euro, UK pound sterling, etc. The presence in the state monetary unit is the essential attribute of national sovereignty.

The monetary unit of this kind in the framework of national economies perform several internal functions: a medium of exchange, a unit of payment, a store of value.

In economic relations between countries, national monetary units play the role of world money, which are called "currency".

Currency serves foreign trade in goods and services, international movement of capital, transfer of profits from one country to another, foreign loans and grants, international tourism, public and private transfers.

The fundamental difference of international transactions on domestic is that it involves two or more different currencies. Therefore, international transactions involve matching, comparing different national currencies on their buying power. This mapping is done using the exchange rate.

Currency (exchange) rate is the price of a currency expressed in currencies of other countries.

The exchange rate plays an important role in the market economy and has a great influence on many macroeconomic processes taking place in society. Using the exchange rate compares the prices of goods and services produced in different countries. From the level of the exchange rate depends on the creditworthiness of national products on world markets, exports and imports, and, consequently, the state of the current account balance.

The exchange rate affects the direction of international capital flows. The decision on the investment of national capital in the assets of a country taken based on the expected real return on investment, which depends on interest rates and expected changes in the exchange rate.

The exchange rate along with interest rate itself acts as an asset price. In the presence of developed financial markets today, the value of the asset, the receipt of which is expected in the future, is determined by discounting its future value in accordance with the interest rate and the expected level of the exchange rate.

Dynamics of the exchange rate, the degree and frequency of oscillation are measures of economic and political stability of society.

The exchange rate serves as the object of macroeconomic policies. With it often is the balance-of-payments.

The exchange rate plays an important role in the design and conduct of monetary policy, since maintaining a certain level of the exchange rate may require performance of specific currency reserves, which will inevitably affect the money supply in the economy.

In countries with economies in transition in the implementation of stabilization programs exchange rate may be used as a "nominal anchor" in the fight against high inflation or hyperinflation.

2. Nominal and real exchange rate

capital currency transaction

The most important classification of currency (exchange) courses is their division on account of inflation on nominal and real exchange rates. Nominal currency (exchange) rate is the relative price of currencies of two countries or the currency of one country expressed in monetary units of another country. When using the term "exchange rate", we are talking about the nominal exchange rate. The fixing rate of the national currency in foreign currency at the moment is called the quote currency. The rate of national monetary unit can be defined as in the form of direct quotes, when taken per unit of foreign currency (for example, 2185 rubles per dollar), and in the form of indirect quote is when the unit of accepted national monetary unit (the reverse quote is taken mostly in the UK and in a number of currencies in the USA). The use of indirect rates allows you to compare the rate of the national currency with foreign currencies in any Forex market. When the price of a unit of foreign currency in national currency units is growing, talk about the impairment (reduction) of the national currency. Conversely, when the price of a unit of foreign currency in the national currency falls, say about the appreciation of national currency. In turn, the real exchange rate tells us the rate at which the goods of one country can be sold in exchange for goods of another country. To determine the real exchange rate of the dollar to the pound will give a numerical example. Compare the two pictures the same consumer baskets, i.e. the two sets of goods and services purchased by a typical British and American consumers in the face of households and firms (it is assumed that each consumer basket is relatively greater share of the goods and services produced in their own country).Let the British consumer basket costs 100 pounds sterling, and American - $ 200. To compare two baskets all prices should lead to a common proportionality. If the nominal exchange rate is 2 dollar per pound sterling, respectively consumption basket in the UK costs 200 dollars (h). At these prices real exchange rate will be one basket of the American consumer for the same basket of British consumers the increase in this indicator is called real maturetube mark against the dollar. The real depreciation of the dollar may occur as a result of nominal depreciation and growth rates of the consumer basket in the UK or reduction in the price of consumer basket in the United States. When the depreciation of the dollar with 2 to 2.2 dollars per pound sterling price of British goods, expressed in dollars, will increase. At the rate of 2.2 per dollar for the pound sterling real exchange rate will amount to 1.1 U.S. baskets per British.

The real depreciation in this example means falling purchasing power of dollar in the UK compared to its purchasing power in the United States. The decrease of this indicator due to the appreciation of the dollar, a decline in the price of consumer basket in the UK or the growth rates of the consumer basket in the USA means real have Ndorozhanie dollar against the pound sterling. In General, the real exchange rate characterizes the ratio of prices for goods abroad and in this country, denominated in the same currency. In other words the real exchange rate is the relative price of goods produced in the two countries. Real exchange rate R is defined as: e P *R = P where e is the nominal exchange rate (here and below the number of national currency per unit of foreign), P* is the price level abroad (in foreign currency), P is the domestic price level (in domestic currency).

The real exchange rate assesses the country's competitiveness in the world markets of goods and services. The increase in this indicator, or a real depreciation means that goods and services abroad become relatively more expensive and thus consumers both within the country and abroad will prefer the domestic goods foreign. The decrease in this indicator, or real appreciation, on the contrary, shows that the goods and services of the country become relatively more expensive, and it is losing competitiveness.

There are other approaches to assessing real exchange rate. It can be defined as the ratio of the prices of goods, suitable for international exchange, which include agricultural products, oil, automobiles, industrial equipment, etc., to the price of goods that are not objects of international trade, which include construction and most services. eP tR = Pn where e is the nominal exchange rate; Pt is the price of goods, suitable for international exchange (in foreign currency); Pn - the price of goods that are not objects of international trade (in national currency).

This index also assesses a country's international competitiveness. The decrease in R, or real appreciation, reflecting the rise in domestic costs in the production of goods suitable for international exchange. Sometimes R is defined as the ratio of costs of labour in the production unit abroad to this indicator within the country.

eW*R = W

where e is the nominal exchange rate; W* - unit costs for labor abroad (in foreign currency); W - unit costs for wages inside the country (in national currency). The higher the number, the cheaper the production of domestic goods and higher competitiveness.

Empirical evidence on international differences in price levels, expressed in a single currency, indicate a positive dependence of price level on real income per capita. In other words, the purchasing power of the dollar convertible into the national currency of any country at market exchange rates, the higher, the lower the level of per capita income in the country.

Lower the General price level in less developed countries is due to lower level of prices for goods that are not suitable for international trade (Pn), compared to the prices of goods that serve as objects of international trade (ePt). The reason for this phenomenon is the low level of labour productivity in the underdeveloped countries. If the prices of goods, suitable for international trade, approximately the same in all countries, a lower level of labour productivity in the goods-producing industries, suitable for international trade, less developed countries explains the low level of wages in these industries lower production costs in goods-producing industries that are not suitable for international trade, and therefore lower the price level in these industries. As economic development changes the ratio of labor-capital in favor of the latter primarily in the goods-producing industries, suitable for international trade, increasing marginal productivity of labor and hence wages. Labor and capital away from labor-surplus sectors that produce goods that are not suitable for international trade in a more modern and efficient sectors producing goods that serve as objects of international trade. The supply of goods that are not suitable for international trade, the falling, the rising price of them, and therefore the overall price level in the country. Thus, the growth in real income per capita real appreciation of national currency.

Conclusion

capital currency transaction

So, exchange (currency) rate represents the exchange rate between two currencies.

The exchange rate is necessary to:

· mutual exchange of currencies in trade of goods, services, movement of capital and credit;

· comparing prices of world and national markets, as well as value indicators of the different countries, expressed in national or foreign currency;

· periodic revaluation of the accounts of companies and banks in foreign currency.

Multiple exchange rates can be classified according to various criteria. On inflation, the exchange rate can be nominal and real.

The real exchange rate can be defined as the ratio of the prices of goods of the two countries made in the relevant currency.

Nominal exchange rate shows the exchange rate of the currency valid at the moment on the currency market.

Literature

1. Akopova E.S., Voronkova O.N., Gavrilko N.N. World economy and international economic relations. Series "Textbooks, teaching AIDS", Rostov-on-don: "Phoenix", 2000. - S. 305-306.

2. Miklashevskaya N. And. Kholopov V.A. international Economics: Textbook. - M.: Moscow state University. M.V. Lomonosov Moscow state University, Publishing house "Case and service", 1998. - S. 150-173.

3. Ovchinnikov G.P. international Economics: Textbook. allowance. - SPb: Publishing house of V.A. Mikhailov, Publishing house "Polius", 1998. - S. 187-393.

4. The theory Tr of the Global economy. - St. Petersburg: Peter; 2002. - S. 109-110.

5. Ovchinnikov G.P. international Economics: Textbook. allowance. - SPb: Publishing house of V.A. Mikhailov, Publishing house "Polius", 1998. - S. 389.

6. Miklashevskaya N. And. Kholopov V.A. international Economics: Textbook. - M.: Moscow state University. M.V. Lomonosov Moscow state University, Publishing house "Case and service", 1998. - S. 171.

7. Miklashevskaya N. And. Kholopov V.A. international Economics: Textbook. - M.: Moscow state University. M.V. Lomonosov Moscow state University, Publishing house "Case and service", 1998. - p.150.

8. Miklashevskaya N. And. Kholopov V.A. international Economics: Textbook. - M.: Moscow state University. M.V. Lomonosov Moscow state University, Publishing house "Case and service", 1998. - S. 172.

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