what is globalisation? explain three forms of exchange rates.
Answers
Answer:
Globalization is the process of interaction and integration among people, companies, and governments worldwide.
An exchange rate regime is closely related to that country's monetary policy. There are three basic types of exchange regimes: floating exchange, fixed exchange, and pegged float exchange foreign Exchange Regimes.
Answer:
Globalization:-
Globalization is the spread of products, technology, information, and jobs across national borders and cultures. In economic terms, it describes an interdependence of nations around the globe fostered through free trade.
On the upside, it can raise the standard of living in poor and less developed countries by providing job opportunity, modernization, and improved access to goods and services. On the downside, it can destroy job opportunities in more developed and high-wage countries as the production of goods moves across borders.
Globalization motives are idealistic, as well as opportunistic, but the development of a global free market has benefited large corporations based in the Western world. Its impact remains mixed for workers, cultures, and small businesses around the globe, in both developed and emerging nations.
Some of the major types of foreign exchange rates are as follows: 1. Fixed Exchange Rate System 2. Flexible Exchange Rate System 3. Managed Floating Rate System.
1. Fixed Exchange Rate System (or Pegged Exchange Rate System).
2. Flexible Exchange Rate System (or Floating Exchange Rate System).
3. Managed Floating Rate System.
1. Fixed Exchange Rate System:
Fixed exchange rate system refers to a system in which exchange rate for a currency is fixed by the government.
1. The basic purpose of adopting this system is to ensure stability in foreign trade and capital movements.
2. To achieve stability, government undertakes to buy foreign currency when the exchange rate becomes weaker and sell foreign currency when the rate of exchange gets stronger.
3. For this, government has to maintain large reserves of foreign currencies to maintain the exchange rate at the level fixed by it.
4. Under this system, each country keeps value of its currency fixed in terms of some ‘External Standard’.
2. Flexible Exchange Rate System:
Flexible exchange rate system refers to a system in which exchange rate is determined by forces of demand and supply of different currencies in the foreign exchange market.
1. The value of currency is allowed to fluctuate freely according to changes in demand and supply of foreign exchange.
2. There is no official (Government) intervention in the foreign exchange market.
3. Flexible exchange rate is also known as ‘Floating Exchange Rate’.
4. The exchange rate is determined by the market, i.e. through interactions of thousands of banks, firms and other institutions seeking to buy and sell currency for purposes of making transactions in foreign exchange.
3. Managed Floating Rate System:
Traditionally, International monetary economists focused their attention on the framework of either Fixed or a Flexible exchange rate system. With the end of Bretton Woods’s system, many countries have adopted the method of Managed Floating Exchange Rates.
It refers to a system in which foreign exchange rate is determined by market forces and central bank influences the exchange rate through intervention in the foreign exchange market.
1. It is a hybrid of a fixed exchange rate and a flexible exchange rate system.
2. In this system, central bank intervenes in the foreign exchange market to restrict the fluctuations in the exchange rate within certain limits. The aim is to keep exchange rate close to desired target values.
3. For this, central bank maintains reserves of foreign exchange to ensure that the exchange rate stays within the targeted value.
4. It is also known as ‘Dirty Floating’.