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Managed rate system: No economy can trade foreign exchange in only one
type of currency rates. It is either floating or fixed. It is a hybrid of fixed and
floating.
Major factors affecting the foreign exchange in an economy
1. Differentials in Inflation
As a general rule, a country with a consistently lower inflation rate exhibits a
rising currency value, as its purchasing power increases relative to other
currencies. During the last half of the twentieth century, the countries with
low inflation included Japan, Germany and Switzerland, while the U.S. and
Canada achieved low inflation only later. Those countries with higher inflation
typically see depreciation in their currency in relation to the currencies of
their trading partners. This is also usually accompanied by higher interest
rates.
2. Differentials in Interest Rates
Interest rates, inflation and exchange rates are all highly correlated. By
manipulating interest rates, central banks exert influence over both inflation
and exchange rates, and changing interest rates impact inflation and
currency values. Higher interest rates offer lenders in an economy a higher
return relative to other countries. Therefore, higher interest rates attract
foreign capital and cause the exchange rate to rise. The impact of higher
interest rates is mitigated, however, if inflation in the country is much higher
than in others, or if additional factors serve to drive the currency down. The
opposite relationship exists for decreasing interest rates - that is, lower
interest rates tend to decrease exchange rates.
3. Current-Account Deficits
The current account is the balance of trade between a country and its
trading partners, reflecting all payments between countries for goods,
services, interest and dividends. A deficit in the current account shows the
country is spending more on foreign trade than it is earning, and that it is
borrowing capital from foreign sources to make up the deficit. In other words,
the country requires more foreign currency than it receives through sales of
exports, and it supplies more of its own currency than foreigners demand for
its products. The excess demand for foreign currency lowers the country's
exchange rate until domestic goods and services are cheap enough for
foreigners, and foreign assets are too expensive to generate sales for
domestic interests.
4. Public Debt
Countries will engage in large-scale deficit financing to pay for public sector
projects and governmental funding. While such activity stimulates the
domestic economy, nations with large public deficits and debts are less
attractive to foreign investors. The reason? A large debt encourages inflation,
and if inflation is high, the debt will be serviced and ultimately paid off with
cheaper real dollars in the future.
Factors affecting dollar fluctuations
1. Balance of Payment
a. balance of trade
b. Fall in the prices of foreign goods
c. Balance of investment
2. Politics
a. Budget deficit and national debt
b. Little or no default on debt
c. President Policy
d. Terrorist attack and war
e. Geopolitical events
d. Consistent policies
e. Government expansion
f. Elections
g. Tax cut for consumers
3. Other countries
8. Housing
a. Slow housing market
13. Inflation
a. Slow inflation of foreign goods
b. News about inflation
Case studies
If you are an Importer in Canada, you may import goods from overseas to
Canada. To settle your international orders, you need convert Canadian
dollars to foreign currency and pay your overseas suppliers.
a. In this case you may experience some problems, such as: bad exchange
rates or high commission fees if you go through the bank; or some currencies
are not able to pay via Canadian bank networks, for example: Chinese
Yuan(RMB), New Taiwan dollar(TWD), Indonesian Rupiah(IDR), Malaysian
Dollar(MYR), etc.
b. If you are doing the export business in Canada, you may also come across
some international payment issues. A good example is when you receive the
settled currency payment from your overseas purchaser, usually USD or
HKD, or other major tradable currencies, you need convert the amount to
CAD as soon as possible at a good exchange rate.
ITES shared 28.1% comprised of 23.2% from BPO and 4.9% from engineering
services.
Organisation wise distribution:
Public sector continued to have the highest share with 58.7% which
increased from 64.6% in the previous year.
Private sector companies share reduced from 41.2%in the preceding year to
35.3% in the current year.
Country wise Distribution:
US & Canada: >60%
Europe: 20%
Other countries: 77.4%
Exports reduced in the areas of East and west Asia.
IT Seervices
Locally
To India
Other Countries
23.9
1.8
0.4
Software
Production
Development
2.3
11.2
BPO
15.9
0.4
3.6
Engineering
Services
1.6
0.5
Other services
307.4
184.6
28.9
Share
US
71.3
UK
6.6
Canada
4.1
Germany
Singapore
2.7
Netherlands
2.1
Other Countries
10.2
Conclusion:
CONCLUSION
2013 2014
Indias merchandise exports reached a level of US $ 312.61 billion during
2013-14 registering a growth of 4.06 percent as compared to a negative
growth of 1.82 percent during the previous year. Despite the recent setback
faced by Indias export sector due to global slowdown, merchandise exports
still recorded a Compound Annual Growth Rate (CAGR) of 15.79 per cent
from 2004-05 to 2013-14.
World Trade Scenario
As per IMF,World Economic Report, 2014, world trade recorded its biggest
ever annual increase in 2010 as merchandise trading surged to 14% but
decreased to 2.6% in 2012 and slight increase to 2.7% in 2013. It however
projects acceleration of world trade in goods in 2014 2015 with forecast
growth of 4.3% & 5.3 % respectively. Volume of world trade increased
Sr.No.
Year
1
2
Exports
% Growth Imports
% Growth Trade
Balance
2004 05 375340
27.94
501065
39.53
-125725
2005 06 456418
21.6
660409
31.8
-203991
2006 07 571779
25.28
840506
27.27
-268727
2007 08 655864
14.71
1012312
20.44
-356448
2008 09 840755
28.19
1374436
35.77
-533680
2009 10 844534
0.57
1363736
-0.78
-518202
2010 11 1142922
35.7
1683467
23.45
-540545
2011 12 1465959
28.26
2345463
39.32
-879504
2012 13 1634319
11.48
2669162
13.8
-1034843
10
2013
14(P)
15.9
2714182
1.69
-820000
1894189
% Growth
April
2.36
May
0.17
June
-3.82
July
11.8
August
13.93
September
12.94
October
14.26
November
3.56
December
3.7
January
4.03
February
-5.19
March
-4.8
20
15
10
5
Growth (%)
0
-5
-10
Principle Commodities
Share
Petrloeum
20.05
13.15
Trasnport
6.85
Machinery
5.19
4.81
Others
50
Petroleum
Gems & Jewelery
Transport
Machinery
Drugs and Pharma
Others
2012 13
2013 14
Petroleum
8.6
-3.44
-5.18
-14.12
-16.47
7.13
5.93
11.13
2.58
Others
5.32
5.63
15
10
5
0
-5
2012 13
2013 14
-10
-15
-20
Plantation Crops:
Exportsof plantation crops decreased by 8.17% in US. Coffee registered a
negative growth of7.81%. The value from US $ 866.13 mn to US $ 798.49
mn. Tea also reduced by 8.54%
Agriculture & allied products:
Agriculture and allied products include cereals, Pulses, Tobacco, spices,nuts
& seeds, oil meals, Guargum meals, castrol oil,shellac, sugar & molasses,
Processed Food, Meat & meat Products etc.
Export commodities registered a growth of.81% in the year 2013 2014.
Exports increased from US $ 32017.27 mn to US $ 32277.59 mn.
Ores & Minerals:
Exports of ore and minerals were estimated at US $ 5604.22 bn during 201314 registering a negative growth of .48%. Iron ore and mica recorded a
negative growth of 5.45% & 0.57% respectively.
Processed minerals,other iron ore and minerals & coal registered a growth of
1.76%, 1.59% and 0.4% respectively.
Pricipal Commodties:
Commodities
Share (%)
Petroleum
36.7
Electronic Goods
6.9
Goods
6.4
5.3
5.3
Others
39.4
Petroleum
Electronic goods
Goods
Pearls, precious and semi
precious stones
Machinery except
elecronics
Others
Commodities
2012 - 13
2013 - 14
Petroleum
5.9
0.7
Electronic Goods
-4
-1.4
Goods
-4.8
-46.3
-19.6
-5.9
Machinery except
Machinery
-8.2
-14.3
Others
2.3
-7.2
10
-10
-20
-30
-40
-50
2012 13
2013 14