1. GOVT INFLUENCE ON EXCHANGE RATE

2. EXCHANGE RATE SYSTEMS
1.FIXED
2.FREELY FLOATING
3.DIRTY FLOAT

3. FIXED Def: Bretton woods Agreement 1944-1971
Currencies were valued in terms of Gold
Value of US $ was set as 1/35 Ounce of Gold
Allowed Fluctuation was 1% (+) or (-)
During this period US faced a Trade Deficit
Smithsonian Agreement
Devaluation of US $ = 8% Against other currencies
Fluctuation allowed was 2.25% (+) or (-)
March 1973 Countries quit from agreements
MNC s duties are less difficult
Govt. can devalue or revalue any time

4. Freely floating or Clean Float
Def:
MNC s should devote more :
Time
Substantial resources
To :
1.forecasting
2.measuring
3. managing exposures
to exchange rate fluctuating exchange rates.

5. Dirty Float or Managed Float
Def :
B/w Fixed & Freely Floating

6. Advantages & Disadvantages of Fixed & Freely Floating
Disadvantage of fixed
1.Inflation
2.Unemployment
Advantages of Freely floating

7. The European Monetary System (A limited Float)
The Snake Arrangement (April 1972)
The European Monetary System (EMS) 1979
Exchange rates were tied up with ECU
Fluctuation Allowed was 2.25%
Member Countries Were :
Belgium ,Denmark, France ,
Germany, Ireland , Luxemburg ,Netherlands

8. Government Interventions
Direct Intervention :
Huge Supply (to Decrease value)
Create Shortage (to Increase demand)
Indirect Intervention :
Through Govt Policy
Through Govt Barriers:
Taxes
Quotas
Retaliation Against Govt Restrictions

9. Linkage b/w the Pak deficit ,Pak R s & the Pak Unemployment
Huge Pak Deficit
Excess Govt. Borrowings
High Interest rate
Increased Foreign investment
R s value Strengthen
Pak exports decrease
High
unemployment
In Pak
Pak imports increase

10. Impact of Govt. Actions on Exchange Rates
Govt. Monetary & Fiscal
Policy
Relative national income
level
Relative interest rate
Relative inflation rate
International Capital
flows
International trade
Exchange rates
Attractiveness of internationally
traded securities
Government Interventions
Attractiveness of International
Traded goods