A brief historical development of the selected currency
Introduce how the currency modern development including the types of exchange rate regimes that may have evolved over the modern period. Explain how important political or economic developments have shaped the exchange rate regime. It should highlight the logical sequence of events that have contributed to the historical development of the currency. This section can be written in two to three paragraphs.
The trend of the balance of payments (current and financial accounts)
Describe the recent trends in the balance of payments, especially in the current account with regards to the exports and imports. Link the movements to changes in the exchange rates. It should highlight the logical sequence of events that have contributed to the trend movements of the currency. This section can be written in two to three paragraphs with some charts. The recommended word count is about 100-200 words.
A depreciation of the currency is usually welcomed by the exporters while foreign investors who had bought assets would suffer some foreign exchange loss. Give examples of companies or industries that can support your point. Describe how the accumulation or depletion of foreign currency reserves is linked to currency movements. Explain the potential risks to the country’s economy. This section can be written in two to three paragraphs with some charts.
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The impact of the following factors on the currency movements:
Factors: Inflation, interest rates, growth rates This section examines some possible macroeconomic causes that may have affected the currency’s movements. Link the theoretical concepts taught in class and draw graphs to show the shifts in the demand and supply curves. Support your observation with data and cite the sources. This section can be written in two to three paragraphs with some charts.
Risk of an international financial crisis and financial contagion
In this section, discuss the possible risk of contagion to other industries and countries from the crisis in the country. You may use past examples to support your point. This section can be written in two to three paragraphs with some charts.
Advice for foreign trading partners and investors
Link your advice to allow investors to do their homework and manage their risks. This section can be written in one to two paragraphs.
Conclusion and Recommendations
Provide a short summary to highlight the main issues to show that you have understood the overall situation in the country. Link the recommendations to address the problems discussed in the prior sections. You may use past examples to support your point. This section can be written in one to two paragraphs.
Essay TOPICS: Foreign Exchange Market, International Monetary System and Balance of Payments
Select any one of the following countries:
Ethiopia, Kuwait, Peru, New Zealand, or Thailand
You are tasked to write a report on the selected country using the knowledge you have learned in the first five lessons.
You are to advise the reader on the recent trends in the currency of the selected country. Examine the various factors that have an impact on the movements of the currency.
Given the research and analysis that you have conducted, you are to summarize your findings and provide relevant recommendations to the reader who may be interested in trading (importing/exporting) or investing in the selected country.
Please note that the notation used in the course notes for a particular currency’s spot exchange rate (e.g. Singapore Dollar) is S(SGD/USD) which is the amount of SGD per USD.
An upward trend in the chart means that the USD is strengthening and SGD is weakening. For many charts used by market analysts, the convention would be USD/SGD which implies 1 USD is equivalent to the stated number of SGD. Note that the S is not written for the market convention. Hence S(SGD/USD) (academic version) is equivalent to USD/SGD (market analyst convention) when you examine the chart.
A downward trend means that the USD is weakening and the SGD is strengthening. This convention is used for most currencies except for some. An exception here is the NZD. The market convention here is NZD/USD which is equivalent to S(USD/NZD) which is the number of USD per NZD. An upward trend would indicate that the NZD is strengthening.
In your report, you may consider the following questions as a guide to organizing the structure of the report.
Describe the historical development of the particular chosen currency regime and the trend of the balance of payments (current and financial accounts).
How did the currency movements affect the country’s competitive advantage and foreign currency reserves?
What has been the significant impact (if any) of the following factors on the currency movements? Factors: Inflation, interest rates, growth rates. Select those factors which are relevant and impactful on the currency movements.
What is the risk of an international financial crisis and financial contagion from the problems with the particular selected country on its neighboring countries and trading
What kind of recommendations do you think would be useful to manage the problems involved?
What kind of advice would you give to companies who wish to consider trading with these countries or considering investing in them? You may also highlight any relevant country and financial risks that should be considered.
You may also combine the experiences of two or more from the list of these countries if the content from one country is insufficient for your discussion.