Question

With reference to real world examples assess the pros and cons of different exchange rate systems. In your answer you should refer to:

• Floating exchange rate regimes – you should in particular consider whether floating currencies are conducive to promoting international trade.
• Pegged exchange rate regimes and pegged with bands exchange rate regimes – you should consider the possibility of currency crises in relation to the pegged with bands currency regimes and should consider an actual currency crisis such as the 1992 Black Wednesday Crisis for the pound and its membership of the ERM.
• Single currencies – in relation to single currencies you should consider the pros and cons of the Euro, you should bring in the Optimal Currency Area argument, and you should in particular consider whether a nation like Greece in the aftermath of the 2008 Financial Crisis suffered more than it would have if it had not been a part of the Eurozone (due to its inability to devalue its currency or implement a looser monetary policy) and you should also consider whether the ECB has reposed adequately to the economic challenges of the current coronavirus crisis (i.e. should the ECB be implementing a looser monetary policy in particular right now). You should consider whether a one size monetary policy does fit all.

Answer 1

ANSWER.   Exchange rate framework has an incredible bearing on financial relations and volume of universal exchange between countries of the world.

As we as a whole realize that various kinds of exchange rate frameworks mirrors the strategies of International Trade. Lets look at the effect of different frameworks under various arrangement of monetary circumstances.

1. Floating Exchange Rate framework : a framework where in showcase powers of interest and flexibly of Forex decide the rate of exchange is actually a sponsor for universal exchange. As rate will be a managing power to choose the volume of exchange based on gainfulness. rather than forced or constrained rate by the money related position this framework offers more independence concerning request and flexibly of Forex.

2.Pegged exchange rate framework then again presents dangers of degrading of money and cash emergency as in Uk in 1992 which prompted political precariousness too and is anything but an excellent indication of global monetary believability of the nation. yet, on occasion the financial strength of the nation require the severe and controlled activity to keep a track on assets assurance of local ventures as in India just before freedom.

3.Not to abandon the pretended by single money like euro this really has a ton of in addition to focuses like nonappearance of exchange rate fluctuations,reduced exchange costs,greater transperency in dealings and development of the travel industry and so forth prompting increment in development and unification and yet prompted joblessness in european countries.

to the extent current emergency of covid 19 is concerned the activities and pointers raised on the believability of ECB,are acceptable as for choices identified with ceaseless of loaning at reasonable rates and supporting spending and investment.even for family units getting been made simpler.

concludingly every framework has its own practical and threat zones concerning financial advantages.