Question

make a presentation about analysis of one currency exchange rate in pst 10 years

Answer 1

With regard to volatility, the analysis indicates that exchange rate volatility is probably not

a major policy concern. From the perspective of enhancing trade, the effects of lower volatility are

indirect, and originate from long-term exchange rate commitments such as currency unions and

pegged exchange rates rather than short-term exchange rate fluctuation. The limited importance of

exchange rate volatility is possibly related to the increasing availability of financial instruments to

hedge against exchange rate risks (e.g. forward contract and currency options) and to the increasing

share of intra-industry trade.

This study also finds evidence supporting the argument that trade policy is used to

compensate for the effect of an overvalued currency. However, the policy response seems to be

largely restricted to anti-dumping interventions. The evidence of a response in terms of a slower

pace in tariff liberalization is more muted. Although this correlation should be better investigated,

if confirmed it may have repercussions for the multilateral trade liberalization process, as large

exchange rate misalignments may reduce the incentives to remove existing trade barriers. Of

greater concern is that those results imply that persistent exchange rates misalignments may

increase incentives to recur to non-traditional protectionist policies.

More generally, this research carries three broader policy implications. First, whether

determined by exogenous shocks or by policy, policymakers need to pay attention to exchange

rates of their countries and those of other countries as the effect of currency misalignments on

international trade is considerable. This implies that countries should monitor their exchange rate

relative not only to that of their trading partners but also in relation to that of their competitors.

Second, exchange rate misalignments cannot explain the full extent of global imbalances.

Therefore, exchange rate adjustment can be only part of the solution for global rebalancing and

needs to be accompanied by other policy actions. Finally, strategies to avoid the resurgence of

trade protectionist measures should include multilateral cooperation related to the stabilization of

exchange rates towards their equilibrium level.