Good Example Of Essay On A Lack Of Global Framework For Observing Control Of Growing Cross-Border Capital Flows Covering Source And Recipient Countries.
The foreign exchange market is well developed and provides support to foreign trade exports and imports. The changing landscape of future transactions in types of spot, futures, and forwards allows the trader to be better equipped and also provide arbitrage opportunities. The paper explores the advantages and disadvantages of foreign exchange market with the discussion on the overall reform in the international monetary system.
Keywords: monetary, foreign, trade, system
Describe how organizations interact in the foreign exchange market. Include the advantages and disadvantages of conducting global business using the foreign exchange market. Use examples to help support your discussion. State why you agree or disagree with what you found.
The foreign exchange market exists so that exchange or trade of different countries currencies can occur or happen. This market is loosely organized within the retail tier and the wholesale tier. The first one is retail tier, which organizes small agents to buy and sell foreign currencies. While the second market or wholesale tier is informal, more geographically dispersed with a network of almost 2000 banks and broker firms which deal with one another and larger corporations. Comprising both markets the foreign exchange counter is open 24 hours in a given day, which is split over three time zones. Then the trading in foreign currencies happens each day starting with Sydney, and then moves around the world as business day begins in each of the financial centers. First, it opens in the financial center of Tokyo, then London and then New York. The main role players in the foreign exchange market are commercial banks, currency brokers, speculators, central banks and the corporate. Corporations are involved in market for hedging only though they can speculate as well. Central banks would be speculators i.e. they enter market without positions covered. On the other side commercial banks and currency brokers primarily are intermediaries while during different time they can also be speculators, arbitrageurs and hedgers. Since all the role players as given above are in the forex market, they tend to communicate with traders/dealers. Here the commercial banks are doing largest transactions or have the highest proportion of total trading volume.
Advantages of a foreign exchange market for global business is basically in its low fees, round the clock trading, online tools and automated trading with leverage. According to Groshan (n.d.), disadvantages of a forex market occur from fastness, volatility, failure of online connections, and also when leverage could be a bad tool or high investments having small capital could lead to losses. There is more agreement from what is found in a forex market characteristic interaction while there is less agreement to the advantages or disadvantages which keep on changing with the type of investments.
Visit the site http://www.imsreform.org/. Critically evaluate the idea of reforming the International monetary system. State why you agree or disagree with what you found.
The characteristic features of the website stand out for achieving a purpose of reforming the international monetary system. They define IMS as the set of rules which are internationally agreed, with conventions and also supporting institutions which provide facilitation for global trade. This trade includes cross border investment and also flow of capital between countries.
Though the idea of reforming IMS begins from the rational basis due to the ongoing crisis, it is inimical to overlay projection onto the present system. This attribute in the present structure, lowers financial worth and leads to haphazard future planning and risk assessment as well. With this they have an aim of strengthening International Monetary System (IMS). This aim is the one that is resilient towards any future problem. This is also a key goal of the world community. It has also been accepted about economists at the International Monetary Fund, providing outlines of four key reasons as to why the IMS would need reform. They also give ways to strengthen it, thereby making it more stable and preserving globalization benefits. According to International Monetary system (n.d.), all the four root causes of instability in the current system are,
A global adjustment mechanism among systemic countries is necessary. This reflects in part that the current system allows a choice of its own exchange rate and capital account regimes, limit obligations on domestic stability policies.
A systemic liquidity provision mechanism must be adequately assessed to ensure continued access to liquidity in times of systemic crises.
The structural challenges of the economy affect emerging market economies in becoming systemic and account for a fast growing share of global output.
The four solutions to reforming IMS international monetary system are strengthened policy support; global monitoring with management in capital flows; more reliable global financial safety net; and structuring strengthening of the system through financial deepening and diversification in the supply of reserve assets.
With the global crisis ongoing since 2008, the IMS or international monetary system would do better to find structural finances, an executive mentoring, a perfect policy coordination, which are important goals and lead to making the system more mature to setbacks and disturbances as well as surviving systemic crises. The assessment and definition of an international monetary system are complete with including all necessary aspects of the observed challenges to the world economy. However the way the problem and root causes of the international monetary system get defined here is slightly unable to get through many issues.
This gets down to the following challenges in terms of surveillance, global imbalances, capital flows and reserve system;
Providing essential knowledge and information of past crises and solutions. This must include the tips on how effort was collaborated to come through the systemic crises arising as a depression and economic fallout which was mitigated.
Enabling smaller and Less developed countries to provide a broad road map for why the crisis is ongoing for development in their economy. This includes their assessment of how the problem with progressive development would be tackled and directed efforts in capital restructuring.
The causes and nature of liquidity control in current and capital account for member nations. From the account financial stability one is sure to address inflation, fiscal policy measures, and resources for use in forex trading can be assessed.
How to allow smaller nations to better integrate into the world economy markets and institutions.
According to Edwin (Jan 2010), enabled wide discretion for member countries reaches them so that they can choose their exchange rate with international reserve policies, and carry forward their broad yet uneven capital mobility. While this allows countries to have a domestic policy objective to fulfil it also has underneath their market, a strong growth for global trade within the past recent decades.
Capital reserve policy formation to include measures on financial crises and policy. This could include priority line in lending, quota reforms, and many others.
In conclusion, the idea of using one system for another becomes as the more reflective on efficiencies and weaknesses as it would make the system’s planning better. There is agreement to the definition, four root causes, and though the solutions there is need for more. The use of strong arm measures to undertake massive gains to overhaul systemic crises and in countries, the existence of IMS and IMF stand out. Muneesh (Nov 2013) found that to provide sustainability and consistency to the formation would be an additional solution to strengthening efforts in solving root causes. In sum the definition of IMS, root cause assessment and possible solution could be reformed for above aspects.
Fabiola Groshan. (n.d.). Advantages and Disadvantages of Forex Trading and Day Trading. Retrieved from http://www.streetdirectory.com/travel_guide/184856/foreign_exchange/advantages_and_disadvantages_of_forex_trading_and_day_trading.html
Mohan Rakesh, Patra Michael Debabrata and Kapur Muneesh. (November 2013). The International Monetary System: Where Are We and Where Do We Need to Go? IMF Working Paper, WP/13/224.
International Monetary System. (n.d.). Retrieved from http://www.imsreform.org/
Truman Edwin M. ( January 2010). The International Monetary System and Global Imbalances. Retrieved from http://www.iie.com/publications/papers/truman0110.pdf
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