scroll to top
Stuck on your essay?
Get ideas from this essay and see how your work stacks up
Word Count: 725
Chaos in The Currency Markets Currency Crisis of The EMS1 What does the crisis of September 1992 tell you about the relative abilities ofcurrency markets and national governments to influence exchange rates The currency markets and national governments both have abilities toinfluence exchange rates Like other financial markets foreign exchange markets react toany news that may have a future effect Speculators are the part of the currency marketsthat take currency positions based on anticipated interest rate movements in variouscountries Day-to-day speculation on future exchange rate movements is commonly driven bysignals of future interest rate movements By using the signal speculators usually takethe position before the things actually occurred Sometime if high power enough thespeculators position can influence the exchange rate movement The government controls is one of the factors affecting exchange rate The government caninfluence the equilibrium exchange rate in many way including direct intervening buyingand selling currencies in the foreign exchange markets and indirect intervening byaffecting macro variables such as interest rates2 What does the crisis of September 1992 tell you about the weakness of fixed exchangerate regimes From European currency crisis of September 1992 it shows us that thereare weakness of the fixed exchange rate system When exchange rate are tied a highinterest rate in one country has a strong influence on interest rates in the othercountries Funds will flow to the country with a more attractive interest rate whichreduces the supply of fund in the other countries and places upward pressure on theirinterest rates The flow of fund would continue until the interest rate differential hasbeen eliminated or reduced This process would not necessarily apply to countries outsideERM that do not in the fixed exchange rate system because the exchange rate risk maydiscourage the flow of funds to the countries with relatively high interest rate Howeversince the ERM requires central banks to maintain the exchange rates between currencieswithin specified boundaries investors moving funds among the participating Europeancountries are less concerned about
@Kibin is a lifesaver for my essay right now!!
- Sandra Slivka, student @ UC Berkeley
Wow, this is the best essay help I've ever received!
- Camvu Pham, student @ U of M
If I'd known about @Kibin in college, I would have gotten much more sleep
- Jen Soust, alumni @ UCLA