INTERNATIONAL ECONOMICS AND FINANCE Essay Example | Topics and Well Written Essays - 2250 words

INTERNATIONAL ECONOMICS AND FINANCE - Essay Example The exchange rate of the local currency comes down due to interplay of demand and supply. The floating exchange rate system based on demand and supply is a self-adjusting mechanism in market economy. But, stability in exchange rate is very important for the growth of the economy. Therefore, the central bank of a country exercises its monetary authority to ensure that the local currency is traded around the desired or target exchange rate. The central bank closely monitors movements of exchange rate of the country’s currency. It will intervene in the market by resorting to open market purchase or sale of currencies to maintain stability or for influencing the exchange rate of the local currency in relation to foreign currencies. Spanjers (2009, p. 10) stated â€Å"As the expectation of stable exchange rates tends to promote trade and thus welfare, the monetary authority of each country commits itself to exchange rate targets.† Central bank also in its liquidity managemen t through monetary policies influences money supply in the country with a view to regulate interest rates and keep inflation under control. Money supply in a country will also influence the behaviour of exchange rates. The interest rates and inflation are closely linked to the behaviour of the exchange rate. Gold standard system In Bretton Woods Conference in 1914 the participant countries have agreed to adopt gold standard system which envisaged economic discipline among the nations. But, it could not succeed in achieving the objectives mainly due to currency devaluation spree post-World War-I by the countries to maintain or improve their exports. While devaluation strategy was adopted to make the countries’ products competitive in the world market, in order to make the local products more competitive locally, they also introduced trade restrictions which made the imports costlier. These measures taken by the governments for protecting their national economies had severe imp act on the international trade. To stem this tide in international economy, International Monetary Fund was created in Bretton Woods in 1944 with the aim of preserving global monetary order. The exchange rates of the currencies fixed in relation to US Dollar or gold could not work smoothly for a long period. Defending these fixed exchange rates has become increasingly difficult due to several factors. Under the fixed exchange rate regime the country has to continuously monitor the system and impose several restrictions on transactions involving foreign exchange. These restrictions are likely to encourage black market operations in foreign exchange. The question of devaluation of the currency for a country with fragile economy is the greatest cause for concern. The countries’ current account imbalances caused failure of the system because under consistent deficit in current account a currency cannot be kept artificially at a higher exchange rate. Stability in Floating exchange rates and economy The stability factor, being the major concern relating to exchange rates, could not be addressed in floating exchange rate system based on demand and supply for currencies as well. The process of self adjustment expected to come into play is affected by several factors. For example, when a currency becomes weak, the imports become costlier and exports more profitable and the volume of exports is expected to increase. The increased demand for local currency due to exports and

Analysis of options and recommendations for action Assignment

Analysis of options and recommendations for action - Assignment Example This change in tourism trend could be attributed to uncertain economic conditions, stagnant salaries, rising inflation, and growing threat of terror attacks. Therefore many of the UK citizens think that it is better to visit domestic tourist destinations that are in close proximity to them so as to maintain a good balance between their income and expenses. Evidently, such an adverse trend change in the tourism sector would negatively affect the travel business. This report will examine how the travel agency could respond to this change and suggest specific strategies to boost sales in the context of the change. The declining trend of outbound tourism in UK poses great threats to travel and tourism businesses that increasingly rely on people visiting overseas countries (Travel Mole, 2014). The recent global financial crisis together with rising daily living expenses significantly contributed to this trend because people strongly believed that outbound tourism would cause them to incur huge costs. In addition, there has been a trend of decrease in the ownership of overseas holiday homes in UK over the last few years. The English people think that visiting domestic tourist destinations is a better way to cut down huge expenses associated with outbound tourism and save for the future. The growing threat of terror attacks across the world also discourages UK citizens to enjoy overseas holidays or to own overseas holiday homes (Page, 2011, p.75). A SWOT analysis is a better tool to analyse the internal and external environments of the travel and tourism sectors. While analysing the internal strengths of the UK travel industry, it seems that the country has a well developed infrastructure that support travel and tourism businesses. High cost of operations is a major weakness of these sectors as this issue negatively affects people’s overseas holiday