Abstract This paper defines derivatives as financial instruments such as options, futures, forwards and swaps that are derived from their underlying currencies. The returns on derivatives are tied to yields of these underlying securities and currencies. This paper details the essential role the derivatives market plays in the global economy in countries such as Asia, Germany and Switzerland, in which these economies reap substantial growth rates due to these financial practices. The writer contends that with the presence of this market the financial condition of business entities are stabilized and secure from the possibility of hedge currency risks. The derivatives market also decreases the amplitude in the fluctuation of spot prices and promotes optimal funds placing. The writer stresses the importance in the implementation and development of the currency derivatives market as a necessary prerequisite for the growth of international trade volume, expansion of foreign investment and for the general development of economy.
Table of Contents:
Abstract
Currency Derivatives Operations in the World Economy
References
From the Paper "Derivatives market in Ukraine was operating from 1994 to 1998. Unfortunately, its work was far beneath the world standards. From the very beginning the Ukrainian market was developing as an exchange market, despite the fact that the world derivatives development gained the incentive to growth from over-the-counter form of these instruments. Hedgers, a category of market subjects, almost did not participate in the activity of Ukrainian currency exchanges, and the absence of hedgers makes the market non-balanced and not liquid. Moreover, the world financial crisis of 1997 caused the collapse in currency markets. The National Bank of Ukraine made a decision to hold up and later to abolish the functioning of currency derivatives in Ukraine. We would like to underline that despite the crisis in the Russian market, the operations with currency derivatives were not stopped, but continued to develop."
This paper analyzes the issue of the U.S. trade balance and its significant impact on the exchange rate in America due to the burgeoning trade deficit and declining value of the dollar against other major world currencies.
Abstract This paper examines the relationship between the trade balance and the exchange rate. The writer details the general rule of economics that states a negative trade deficit normally leads to a weaker currency while trade surplus results in enhanced value of currency, although there are exceptions to the rule, which are detailed in this paper. This paper discusses the issue of the U.S. trade balance and its effect on the exchange rate of the country's currency which is currently in the limelight due to the burgeoning U.S. trade deficit and the declining value of the dollar against other major world currencies. The writer of this paper delves into America's economy against that of China's and questions whether the U.S. dollar will retain its status of the reserve currency in the long run. This paper touches on the opinions and views of economists and U.S. treasury officials who contend that the current trade deficit is nothing to be alarmed about as the country's economy and the U.S. dollar survived a similar slide in the late 1980s. This paper also discusses the opinion of the U.S. administration that believes the alleged under-valuation of the Chinese Yen is a prime source for the deficit problems since there is a huge and growing trade imbalance between the U.S. exports and imports to China. The well-researched and well-written paper clearly define the terms: Trade balance, exchange rate and reserve currency.
Table of Contents:
What is Trade Balance?
What is Exchange Rate?
The Extent of Trade Balance Deficit in the U.S.
What is a Reserve Currency?
Can the U.S. Dollar Retain its 'Reserve Currency' Status for Long?
Is the U.S. Trade Deficit Sustainable?
Is China the Source of the Deficit Problem?
Possible Solutions to the Trade Deficit Problem
Conclusion
References
From the Paper "The key question is, can the US dollar retain its status of the resrve currency for long? History suggests that it may not. Before the advent of the dollar as the world's reserve currency, the British Pound had enjoyed such a status. Between the two World Wars and the post-World War II period saw the weakeing of the British economy. As a result, the British Pound was devalued by 30% in 1949, effectively ending its run as the world's reserve currency and the start of the dollar's reign. Dollar has been able to retain its status as the reserve currency since it was relatively stable, was backed up by the formidable economy of the US, low interest rates and the absence of an alternative currency."
Abstract This research discusses China's currency policy and how it affects global trade patterns.This paper pays particular attention to trade patterns with the world's leading economies such as the US and the EU. The US trade deficit with China is cited as an example of its use of an artificially valued currency as an effective barrier to trade imports into China. In this sense China's undervalued yuan is a barrier to imports and is maintained as such although China employs its undervalued yuan more to maintain its comparative advantage relative to its export market.
From the Paper "There are many types of trade barriers that can have a deep and lasting impact on the character of trade relations between nations. One of the most visible nations in the world today relative to trade and economic vitality is China. China's de facto role as the world's manufacturer has meant that its export market and foreign trade relations are intricately intertwined with the leading economies of the world such as the US and the EU. In this respect, leveling the balance of trade between China and these other leading economies is important to their long-term health. For example, the size of the US' trade deficit with China was over $200 billion and growing in 2004 (China, 2005)."
Abstract Paul Krugman's book, The Return of Depression Economics, examines the economies of seven different countries that produce the majority of the economic output of the world, and how each has been affected by major economic slumps throughout the world. This interesting yet very complicated book offers a tour of the major economic crises which have spread across the world in the 1990s, including those of East Asia, Brazil, Mexico, and Russia. Paul Krugman provides brief accounts of the devaluation of Thailand's baht currency, the "financial doomsday machine" created by hedge funds, and the "liquidity trap" of the Japanese economy. Krugman's light journalistic style is easy to read for the most part and is well-targeted at his intended audience. Many of the nine chapters stand very well on their own as slightly extended versions of what is known in the US as op-ed pieces. For example, the chapter on hedge funds contains as clear an explanation of the operation of such funds as a layman could get anywhere. It also contains a number of brief, enlightening and well-written stories under sub-headings like 'The Legend of George Soros' and 'The Madness of Prime Minister Mahathir', and concludes with 'The Panic of 1998' which outlines the demise of Long Term Capital Management. In other chapters there are equally succinct and fascinating stories concerning Mexico, Argentina, Thailand and so on. Some of these extracts ought to make very useful reading to stimulate discussion on undergraduate macro, international or development economics courses. It is the purpose of this paper to examine the major themes of Krugman's book.
Abstract This paper discusses international trade patterns and trends, specifically the relationship between trade and world output. It also discusses the methods governments use to promote and restrict international trade. The paper then discusses the consequences of the nations of the world cutting off trade with one another. It gives examples of what the repercussions would be in the United States and in Japan.
Table of Contents:
Trade and World Output
Patterns of International Trade Cutting off all Trade
From the Paper "Island nations would be most hard-hit by a cessation of trade however. Japan, for example, although it has one of the world's most developed agricultural sectors, is land-poor. Japan has little farmable land compared to its high population. It cannot grow enough wheat, soybeans, or other major crops to feed all its citizens and has one of the lowest rates of food self-sufficiency of all industrialized countries. ("Economy and Industry," 2006, Explore Japan) It must import a high percentage of its food from abroad, and food is already prohibitively expensive in Japan. Japan also must import a large percentage of its energy resources, and were these resources not available from abroad, its manufacturing sector would be substantially curtailed unless other methods of production using sources of power such as electricity or solar power could be deployed to fuel the industry, as Japan does not even have access to much untapped fossil fuel."
Abstract This document discusses the characteristics and attributes of hard and soft currencies. The paper identifies hard currencies as positive investment targets and are typically associated with stable economies and politically stable markets. The paper further discusses how soft currencies are most often associated with emerging markets and are typically avoided by investors because of their negative practices such as issuers often pegging such soft currencies to hard currencies which serves to destabilize world currency markets.
From the Paper "Hard and soft currencies as well as knowledge of them are vital in the global economy. How international currencies interact is a strategic consideration for corporate bodies with operations in more than one area, country, or region in matters such as hedging for risk or in repatriating revenues. A hard currency is typically referred to as the currency of a leading economy and one that is widely accepted in all markets as a common form of payment, such as the U.S. dollar, the Swiss franc or the British pound (Carrada-Bravo, 2003, p.17). Additionally, hard currencies, or currencies classified as hard in character are especially liquid on foreign exchange markets where they are actively traded. Another perspective of hard currencies is that they are normally associated with politically, economically, and socially stable countries (Laulajainen, 2003, p.44)."
This paper uses the prospectus and the quarterly and annual financial statements of each company as required by Security and Exchange Commission (SEC) to compare four publicly-traded companies: Bausch & Lomb, PepsiCo, The Gillette Co and Brush-Wellman.
1,170 words (approx. 4.7 pages), 0 sources, 2006, $ 40.95
Abstract This paper explains that publicly-traded companies, by law and in compliance with the Security and Exchange Commission (SEC), must submit financial statements to the SEC and to their shareholders in accordance with Standard Accounting Practices and Auditing Procedures dictated by standards established by the American Institute of Certified Public Accountants. The author points out that PepsiCo and the Gillette Company present different reporting styles; although both meet and far exceed all reporting requirements, the Gillette Company "plays it very close to the vest" by restricting the distribution of their data concerning their operations such as presenting their "Costs of Goods Sold" figures as muddled as they can keep them legally. The paper concludes that the consensus from this analysis of these four companies is that their current ratio trends should continue over the next two to four years, with the possible exception of Bausch & Lomb, which must address its stiff competition or continue to suffer the company's downward trend.
From the Paper "Bausch & Lomb publish their Returns on Equity, a dismal 6.4%, and 43.86% below the Industry Average. In addition, their published Returns on Assets also are dismal at 2.1%, and 56.25% below the Industry Average, with their Returns on Inventory Costs equally bad at 4.7%, and 37.33% below Industry Average. This company is the only one of the four to publish data usable to calculate these returns. All three of the others do not publish the information; for security reasons, both government enforced and self imposed therefore these numbers are impossible to compute for them in any comparative format."
Abstract This paper reviews ten articles on the currency crises of the past 20 years. The paper examines the global impact a crisis in one country or area has on the world, such as the Asian currency crisis of the 1990s, and discusses the notion that currency crises are self-fulfilling. The paper also looks at whether currency crises are predictable.
From the Paper "Currency crises have gained much attention in the past years because they have apparently occurred with greater frequency than in the past or perhaps because the global nature of today's financial markets make a currency crisis in one nation a concern around the world. Increasingly, currency stability is of interest to more than just economists and policy makers, with companies and individual investors noting the movement or stability of various currencies with interest .These are not necessarily new stakeholders with regard to..."
Tags:Currency crises, currency crisis, literature review
Abstract This document discusses the Euro markets within the European Union vis-a-vis the Euro currency. The paper examines the currency itself, its management, as well as the individual markets. Finally, the paper makes several observations regarding the macroeconomic impact of the euro as well as how companies utilize currency markets for competitive advantage. The Euro is now considered a hard currency.
From the Paper "Familiarity with the Euro currency markets is vital in the current global market. The implementation of the Euro currency required careful and lengthy planning. The exchange rates at induction of the Euro was particularly problematic considering the sheer variety of national currencies that were being converted over and the variance of existing exchange rates whereby a complex system of triangulation between currencies, exchange rates, and fixed rates (Mundell, 2003). Thus, on January 1, 1999 the Euro was introduced to the national economies of the member states of the EU in 11 of the 12 countries. However, this was just a partial introduction since Greece failed to meet the strict requirements which involved deficits: "On January 1, 1999, the Euro will become the official currency for banking purposes of 11 of the 15 member states of the European Union..." (Walker, 1998, para.6)."
Abstract This paper examines hard and soft currencies. It provides a definition and practical examples of both. The paper addresses the issue of convertibility, as well as the options sellers have relating to hedging.
From the Paper "A hard currency is a freely convertible currency that is not expected to depreciate significantly in value in the foreseeable future. A hard currency is considered to be stable meaning that it is not subject to dramatic variations in its value relative to other currencies expressed as changes in its exchange rate. As a general rule, demand for hard currency in foreign exchange markets is high because of it stability. A soft currency often is a currency that is not fully convertible to all currencies..."
Tags: Hard and soft currencies, foreign exchange, fx, exchange rate fluctuations, currency converters, volatility, exchangeability.
Abstract This eight page paper examines hedging currency risks. The author notes that in critically discussing the view that the efforts by companies to hedge currency risks are of little value to the owners of such companies, it is evident that there is much support for this view. For example, the writer points out that in a Mercer Management Consulting survey of 111 pension fund managers in North America, Australia, Japan and the UK, 86% of respondents said they consider the impact of hedging currency risks to be nil over the long term.
From the Paper "In critically discussing the view that the efforts by companies to hedge currency risks are of little value to the owners of such companies, it is evident that there is much support for this view. For example, "in a Mercer Management Consulting survey of 111 pension fund managers in North America, Australia, Japan and the UK, 86% of respondents said they consider the impact of hedging currency risks to be nil over the long term". But this view is not universal by any means, for more than sixty-percent of the respondents in this survey believed that hedging currency risks "can have a short-term effect on volatility. Despite this reservation, 79% say they would allow fund managers to carry out hedging operations"."
Abstract The paper provides the background of the 1997 Asian currency crisis and explains the five main causal factors. The paper then explores the effects of the Asian currency crisis on the Asian economic paradigm and concludes by relating that major hindrances still remain in the banking system.
Outline:
Main Explanations of the 1997 Asian Currency Crisis
Implications of the Crisis for the Asian Economic Paradigm
From the Paper "The Asian currency crisis started in two phases of currency depreciations which were underway since the initial part of summer of 1997. The first round was marked by a steep decline of the Thai Bhat, the Malaysian Ringgit, the Philippine Peso and the Rupiah of Indonesia. Following the stabilization of the currencies, the second round set off with downward pressures hitting the Taiwan dollar, Won of S. Korea, Singaporean and Hong Kong Dollar. The governments of these nations had countered weakness in their currencies through the process of selling foreign exchange reserves and raising interest rates that in effect rendered economic growth sluggish and have made interest-bearing securities more appealing compared to equities. The currency crises also brought to light acute problems within the banking and financial sectors of the burdened Asian economies. (Nanto, 1998)"
Abstract The prospect of switching Britain's official national currency to the Euro, and the related issue of whether the country should join the European Union, have certainly inspired much heated debate and a variety of viewpoints regarding possible consequences of these changes. This paper explains that the widespread prevalence, passion and diversity of the public discussion on British currency could be seen as a possible reason for the government's resistance to the Euro, in and of itself. It explains that the United Kingdom is regarded all over the world as a successful, consolidated democracy, meaning that the government represents the interests and wishes of its citizens. The writer further points out that therefore, it seems likely that until the public is assured and convinced that the Euro will result in only positive economic and political changes for both ordinary Britons and the country as a whole, the pound will continue its exclusive monopoly over the British economy for many years.
From the Paper "The decision of Britain of whether to adopt the euro as their only currency and eliminate the pound completely has been widely debated over the last few years. There are a myriad of good reasons for this; the switch to the euro currency will undoubtedly have various consequences whose benefits and downsides are very debatable. These consequences will certainly affect several of Britain's long-established roots and traditions in aspects of its government such as the economy, of course, but also its political parties, European integration, international relations, citizen participation in the government, and public opinion. Furthermore, economic results of Britain's adoption of the euro will likely include significant modifications in taxation, trade, unemployment, price stability, interest and exchange rates, standards of living, and economic distributional policy."
Abstract This paper looks at the currency crisis in Thailand, which started in the summer of 1997 and rapidly engulfed a number of East Asian "Tiger economies" in a major financial crisis. This crisis became a an interesting case study for economists who were interested in analyzing the pros and cons of globalization and laissez faire market economies. The author further examines the effects of the East Asian currency crisis, on Thailand itself, which underwent a painful re-adjustment of its economy.
Outline:
Background
The Danger Signals
Foreign Exchange Reserves
Current Accounts Deficit
Excessive Credit Expansion
Why Did the Growth Slow Down?
The Housing and Real Estate Bubble
The Stock Market Bubble
The Crisis
The Aftermath of the Crisis for Thailand
Conclusion
From the Paper "The country took a number of measures to attract foreign capital during the 1980 and early 1990s. These included lifting of restrictions on foreign investments, elimination of most barriers on foreign ownership of export oriented industries, granting of tax incentives to foreign mutual funds and investments in the stock market, creation of closed-end mutual funds, and reduction of taxes on dividends remitted abroad (Antczak 40-41). These measures along with a pegged exchange rate policy (i.e., the Thai currency baht was pegged to the dollar and its value rose and fell with dollar's value), and the large differential in interest rates provided comfort to foreign investors who came to Thailand in droves. "
Tags: Thailand, currency, crisis, globalization, Asia
Abstract This paper describes hard and soft currencies . The author clarifies the way they are used in global financing operations. The paper stresses their importance in managing risk.
From the Paper "A working definition of a hard currency is a freely convertible currency that is not expected to depreciate in value in the foreseeable future, meaning that it is a relatively stable currency not normally subject tn dramatic variations or fluctuations in the exchange rate. Another definition would be that a hard currency is a currency traded in a foreign exchange market for which demand is consistently and persistently high. In contrast, we could define a soft currency as a currency that is not fully ..."
Tags: Hard and soft currencies, Convertibility, FX, fluctuations, risk mitigation, hedging tools
