Question

Within the uk, analyse how the a FX market of your choice has been impacted by a recent political event of your choice.
Your answer should include a brief outline of the political event at the start of your answer.

Answer 1

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Question:

Answer:

The withdrawal of the United Kingdom from the European Union (Brexit) is the recent political event in the UK. This is a big political event in the history of UK. UK is a developed country with 6.6 cr population. The GDP (2019) of UK was $2827.11 billion. The GDP value of the United Kingdom represents 2.33 percent of the world economy. It is the 6th largest economy and its was an important memeber of EU. In 2014, the U.K. was the fourth largest national contributor to the EU budget, after Germany. The UK was a key asset for the EU in the fields of foreign affairs and defence and it was the 2nd biggest military power in the EU. EU is is the second largest economy ($18 trillion) after the USA. The EU play an important role in the global economy and political systems. The EU have own central bank and currency. ECB is the central bank of the EU and Euro is the currency of EU.

Impact of Brexit on EU:

Brexit has affected the EU politically and economcally both. It increase the economic and economic instability in the EU. It has increased risk in the EU market and affect the interest rate market and foreign exchange market. EU play an important role in international trade and its got affected due to Brexit. The EU is already in finacial trouble and the major country of EU like, Itlay, Spain, Greece, Portugal are facing big economic troubles since gloabl recession of 2008-09. These country have a big debt burden and the economic growth is very low and negative in some countries. Greece had got bankrupted during this global crisis. The central bank and governments are facing big deficit problem. During this critical situation the Brexit is affected the EU worst. EU banks are facing the problem of liquidity and AD is at very low level. Interest rate is near about zero in Euro Zone. Now the investors are demanding for more risk premium and economy uncertainty and recession has damage the credibilty of EU and it has got depreciated. It has negatively affected the foreign investment in the EU market On Tuesday 1 January 2019 EU/USD was  $1.1462 and on Thursday 19 September 2019 it was $1.1044 on Saturday 28 December 2019 it was $1.1175. On Wednesday 24 January 2018 EU/USD was $1.2391 and on Friday 9 October 2020 it was $1.1828. So, we can see that how the foreign exchange market of EU hes got affected and Euro has got depreciated and the volatility has increased in the foreign exchange market.

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