International Economics for Exports and Imports-myassignmenthelp

Question: Discuss about theInternational Economics for Exports, Imports and Debts. Answer: There are numerous factors that influence the forex prices. Anything that creates an impact on the flow of money in a nation or between the countries might create an impact on the currency value. Below stated are the factors that effects the foreign exchange markets are as follows; Inflation Rates: Modifications of the inflation rate in the market can lead to the change in the currency exchange rates. A country having lower rate of inflation than the other country will witness a rise in the value of its currency (Deventer et al., 2013). A nation with constant lower rate of inflation presents a rising currency value whereas the nation with higher amount of inflation would witness a fall in the currency and is escorted by the rising interest rates. A nations current account or balance of payments: A nations current account demonstrates the balance of trade and earnings on the foreign investment. This comprises of the total amount of transactions together with the exports, imports, debts etc. If there is a deficit noticed in the current account because of the spending of currency on importation of products, then the earnings generated through sale of exports results in depreciation (Bodie, 2013). Therefore, the balance of payment fluctuates the exchange rate of a domestic nations. Government trade: A nation having government debt is less probable to obtain foreign capital that ultimately results in inflation. Overseas investors would dispose their bonds in the open market given that the market predicts the government debt within the specific nation (McMillan, 2013). As a result of this, a fall in the value of the exchange rate will come following. Recession: When a nation witness recession the rate of interest will fall it ultimately decreases the chances of acquiring in the foreign market. As a result of this, the currency of the nation weakens in respect to that of the other country that ultimately lowers the exchange rate. The foreign exchange market is generally described as the worlds highly liquid fiscal market. However, this does not signify that the currency is not subjected to varying liquidity conditions that the traders of currency are required to bear in mind. From the perspective of the individual trader, liquidity is generally experienced in respect of the volatility of the movement in price (Mishkin, 2016). A market that is highly liquid would be witnessing more movement in the prices abruptly with larger price increments. The foreign exchange risk on the other hand, represents the financial risk of the exchange rate of an investment change in value because of the changes in the currency exchange rates. Foreign exchange risk generally creates an impact on the business that export or import their products services or supplies (Friedman, 2017). Considering the relations of risk in the foreign exchange market a firm faces the risk due to the economic exposure given that the market value is impacted by the unanticipated volatility in the currency rate. Fluctuations in the currency rate might influence the position of the company in comparison to its value, competitors and its future cash flow. Money can be regarded as anything which is usually accepted as the medium of exchange namely coins, cash, debit cards and cheques. It helps in underpinning every countrys economy. Every country prints or mints its own currency of money. However, a central bank implements the control on the supply of money in a nation (Mishra, 2015). The supply of money can be defined as the entire amount of money that is held by the public along with the transactional accounts balances, cash or the travellers cheques. A transaction account is referred as the bank account which enables direct payment to the third party. For instance, an individual can make use of the cheque or debit card to make purchase of the local farmers market. Cash on the other hand refers to the quantity of currency or coin in the circulations beyond the territories of the bank account. Basically, it can be stated that the money supply represents the amount of the money which is available with the nation during any given period of time. Interest rates on the other hand represents the amount of money which a person pays in respect of the loan taken by them. Financial institutions profit when they give out the loan for a certain sum of money and requires the lender to repay the sum of initial loan along with the additional sum of money forming a specific percentage of the loan. Considering the relation of interest rate on the supply of money it can be stated that the interest rate has the direct impact on the quantity of money that is in circulations (Hung, Thompson, 2016). If the reserve bank increases and lowers the discount rate which in this case is the interest rate that is charged by the banks for borrowing money would be to either limit or expand the supply of money. In respect of finance, an exchange rate can be defined as the rate at which one currency can be exchanged for another currency. When the exchange rate is increasing, a nation must sell its currency which ultimately increases the holdings of the international reserves and the supply of money. It becomes necessary for the central bank to keep the exchange rate fixed that ultimately creates an impact on the monetary base and hence the supply of money (Selgin, 2015). The empirical findings from the comparison has confirmed the presence of the long run equilibrium relationship between the money supply, exchange rate and interest. In line with the comparison the findings from the relationships has demonstrated that in the long run interest is positively related to the supply of money and the exchange rate, whereas it is negatively associated to real income. The effect of money supply in proportion to the exchange rate is to lower the exchange rate, lessen the financial account and reinforc e the current account. Reference List: Bodie, Z. (2013).Investments. McGraw-Hill. Hung, H. F., Thompson, D. (2016). Money Supply, Class Power, and Inflation: Monetarism Reassessed.American Sociological Review,81(3), 447-466. McMillan, D. G. (2013). Risk and Return.J Bus Fin Aff,2, e130. Selgin, G. (2015). Synthetic commodity money.Journal of Financial Stability,17, 92-99. Mishra, C. S. (2015). Risk and Return. InGetting Funded(pp. 193-218). Palgrave Macmillan US. Deventer, D., Imai, K., Mesler, M. (2013).Advanced financial risk management. Singapore: Wiley. Mishkin, F. (2016).The economics of money, banking, and financial markets. Boston [etc.]: Pearson. Friedman, M. (2017).Quantity theory of money(pp. 1-31). Palgrave Macmillan UK.