Essay on Currency What is Exchange Rate - 701 Words

Exchange rate represents the external value of a currency. Changes in exchange rates may affect the relative position of a country in the international trade. Politicians and economists concern about exchange rate variability for lots of reasons, among which that the exchange rate variability discourages trade comes first. However, a large empirical literature on this issue does not confirm a significant effect of exchange rate on the volume of trade [1]. Instead other variables such as employment should be much more important from a practical point of view, for it is closely related to people’s livelihood. With Chinas deepening Opening Up and economic restructure adjustment and the continuous appreciation of RMB in recent years, the†¦show more content†¦The second channel points to the influence of the real effective exchange rate on the economic growth rate and on the rate of job creation in the long run. Through the last channel, the real effective exchange rate affects employment by influencing the labor intensity of industries. Li Tiandong and Jiang Boke (2006) point out that the relationship between exchange rate and employment depends on the coaction of three mechanisms: (1) the effect of exchange rate changes on aggregate demand; (2) the effect of exchange rate changes on prices of capital goods; (3) the substitution effect of exchange rate changes on the relationship between physical and human capital.[4] 1.2.2 Review of empirical researches Many other academics have attempted to do empirical studies to confirm that there is really a force that exchange rate has driving the (un-) employment level to correspond to the changes. Starting from the â€Å"option value of waiting† to create a job and taking the bargaining position of workers, reservation wage into account, Belk and Gros (2002) find the link between exchange variability and employment stronger in most European countries than in the US. [4]From the industry point of view, the impact of exchange rate movements onShow MoreRelatedForeign Exchange Market Essay example786 Words   |  4 Pageschoose can exchange rate system to determine how prices in the home country currency are converted into prices in another country’s currency (every country) †¢ A managed floating exchange rate refers to (an exchange rate that is not pegged, but does not float freely) †¢ A small country with strong economic ties to a larger country should (PEG ((HARD OR SOFT)) THEIR EXCHANGE RATE TO THE LARGER COUNTRY’S CURRENCY) †¢ An increase in the real exchange rate (real depreciation of domestic currency) will resultRead MoreIntroduction Of The Foreign Exchange Market Essay1325 Words   |  6 PagesForeign Exchange Market As the leading financial market in the world, the Foreign Exchange Market consists of several types of financial institutions, such as, investors, such as, central banks, brokers, and investment firms. 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