QUESTION 1
Based on the above case, identify FIVE (5) reasons of Malaysian Ringgit (RM) devaluation.
ANSWER
1. The weakness of the ringgit was continued because of dampened foreign investors to assets denominated in ringgit.
The currencies floated the ringgit was determined by the interaction of supply and demand in the international financial markets and it should be noted that the currency has a price or depreciation does not necessarily have a fixed meaning. Then, there is a real effective exchange rate. The weights are determining by comparing the relative trade balance, in terms of the national currency with every other country in the index. For example, a barrel of Brent crude oil prices began to fall sharply in June 2014 following
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We use the Ringgit to buy goods in Southern Thai but the ringgit was decline because it shrink even more worse than the depreciation of the Thai Bath. The investors panic as the downturn in Thailand so they withdraw the investment from Malaysia. National Bank tries to fight the depreciation of the Ringgit by using foreign currency stock to buy Ringgit and increase the interest rate. When interest rates rise, the monthly installment to the bank also increased and many have failed to pay the bank. The company also ran out of money for the operation into bankrupt. Bank run out of capital and went …show more content…
Currency changes have a direct impact on the trade of a country, or export and import. In general, a weaker currency will encourage exports caused imports become expensive, thus reducing the trade deficit of the country for a certain period. The fall of the domestic currency is a major reasons why the export business to remain competitive in the international market and vice versa. Moreover, the low value of the currency has been an opportunity for Malaysia to compete in the export market for Malaysia product becomes more cheaper than a stable value its currency. The government had prepared a number of actions to ensure increased earnings from exports thus ensuring Malaysia Currently Account Balance is always
The 'Select base money button permits you to decide from five base cash: the YUAN, next is the euro, third is the yen, and fourth is sterling along with the American dollar. You can too decide to observe the index in its unique 'raw' form, and also adjusted
Just like a public company [that issues too much stock] can be punished by the public markets for diluting its share structure, a nation’s currency can suffer the same effects through inflation if the government prints too much money relative to the value of the economy. This can be co...
Economic indicators often affect and influence the value of a country's currency. The Trade Deficit, the Gross National Product (GNP), Industrial Production, the Unemployment Rate, and Business Inventories are examples of economic indicators. We will be dealing with four specific indicators: interest rate, inflation, unemployment, and employment growth, as well as Real Gross Domestic Product (GDP). Real GDP is so called because the effects of inflation and depreciation are accounted for in the figures. The state of the economy is important both on a micro and macroeconomic level.
The business reason that led for China Noah’s potential currency exposure is the fact that the company wanted to shift its business of procurement of wood to Indonesia. The procurement that was to be moved to Indonesia was to be that of a large portion of raw materials. The company wanted to shift its procurement to Indonesia because the country had abundant wood resources, and since the market of the supply of tight wood was increasing in China every year the company had to look for more, raw materials. The company
There is a close relationship between Gross Domestic Product (GDP) and the unemployment rate as it will relate to the decrease or increase of inflation rate. The inflation rate will increase when GDP and unemployment decreases, because it will affect the purchasing power of the people of a particular country.
There is a constant flow of cash and funds through the financial system due to the financial institutions as they assist money movement among the borrowers and lenders (lecture notes, chapter 8, 9, 15) a financial institution is basically a firm like a bank which acts as a safe house for depositors to keep their money and also provide loan with interest to others and this how they expand the institution. This is the basic concept of the way the economics works in a country and also how a bank functions. All the banks are connected to one another and if there is a problem in one of the banks the bank looses it image in the minds of the people and if it’s a big problem it can cause disaster within the financial system of the country and this can only be caused due to shortage of liquid cash. To have a proficient system the bank has to be sure to be liquid to avoid any problems. (Chapter 1) To help avoid this problem the government lays down regulations for the banks through prudential supervision (Chapter 2). The Australian regulatory power is Australian Prudential Regulation Authority (APRA), whereas in Singapore it is Monetary Authority of Singapore (MAS). The key concept of their job is to assure the people that their money is in safe hands. Keeping the capital safe is essential as it assists the bank to expand and help them pay off any debts when needed (Chapter 2). In context to if there is an emergency as the government has some control on the banks it asks them to keep some money on the ...
Thailand implements a controlled floating exchange rate system, pricing to market forces on the Thai baht, and the Thai central bank would only intervene in the market when necessary, in order to avoid excessive exchange rate volatility to the expected impact of economic policies. At present, the global economic slowdown, domestic demand is not good in Thailand. In order to keep the country's export competitiveness, the Bank of Thailand is more inclined to let the baht weaken.
Floating exchange rate which is also known as fluctuating exchange rate or flexible exchange rate is an exchange rate regime where its currency is determined by foreign exchange market forces such as demand and supply of that currency relative to other currencies.
The leading model, Monetary Model links exchange rate movements to the balance of payment, which is used for medium to long term analysis. The following assumptions cons...
According to The Star Online, up to 80% of the total group borrowings of RM7.49 billion were denominated in US dollar. Simultaneously, 8% of the total group borrowings were denominated in Euro currency. In other words, the total debt of the group that denominated in US currency worth at US$1.33 billion, approximately cost at RM5.91 billion. The total debt that denominated in Euro currency cost around €129.8 million, approximately cost at RM610.61 million. The high composition of debt in foreign currency caused the group extremely vulnerable to foreign exchange risk. A sensitivity analysis conducted by CIMB Research revealed that IOI could face RM148 million of loss or gain for foreign exchange translation risk with every RM0.10 rise/drop in Ringgit to US dollar exchange rate. Due to substantial losses on foreign exchange translation and fair value loss on derivative loss, the company predicted that the second quarter net profit of 2017 will be dropped by 98% to RM15.6 million, compared to the first quarter net profit recorded at RM703.7 million (Kok, 2017). Thus, foreign exchange risk is considered as high risk for
Debt crisis is becoming common and faced by most citizens in Malaysia. Between June 1997 and January 1998 a financial crisis swept like a brush fire through the "tiger economies" of SE Asian. Over the previous decade the SE Asian states of Thailand, Malaysia, Singapore, Indonesia, Hong Kong, and South Korea, had registered some of the most impressive economic growth rates in the world. Their economies had expanded by 6% to 9% per annum compounded, as measured by Gross Domestic Product. This Asian miracle, however, appeared to come to an sudden end in late 1997 when in one country after another, local stock markets and currency markets imploded. When the dust started to settle in January 1998 the stock markets in many of these states had lost over 70% of their value, their currencies had depreciated against the US dollar by a similar amount, and the once proud leaders of these nations had been forced to go cap in hand to the International Monetary Fund (IMF) to beg for a massive financial assistance. (W.L.Hill, n.d.)
The foreign exchange market is one of important mechanism in the international business because foreign exchange is an intermediary for all nations in term of the growth of the economy. There are many functions of foreign exchange market in the global economy. In the international business, it uses the foreign exchange markets in four ways. First, the pay...
The first of these exchange rates, nominal, is the number of units of a given currency that can purchase a unit of a given foreign currency (INSERT CITATION). When using this rate, countries are able to value of their own currency relative to one-another when trading in the foreign exchange market. This principle, however, is not exclusive to trading currencies. Similar to the nominal exchange rate, the real exchange rate uses goods and services in place of currency. As a result, it is defined as the amount of goods or services that can be traded in one country for a good or service in another country. Using this rate, countries are able to gauge the competitiveness of their goods and services in trading with any given country, making it a key factor for countries trading in the global economy.
Daily in the USA about 38 million banknotes of various face value for total amount about 541 million dollars are issued (Facts about USA money).Dollars involve deep consequences both for the USA, and for other countries. Increase of its course relatively reduces the volume of export revenue in dollars, quite often involves more considerable, than change of an exchange rate, falling of the world prices, especially on raw materials. On the contrary, decrease in a dollar rate serves as the powerful tool promoting growth of the American export and a pushing off of competitors of the USA in foreign markets. At the same time import to the USA owing to effect of a rise in prices restrains. Thus, for the USA changes in the exchange rate of dollar anyway bring benefits and advantages.Reduction of leading positions of the USA in world economy is assisted by the international role of dollar which remains the main reserve and settlement means in world monetary system. Foreign currency reserves of the central banks of other countries for 61% consist of dollars, nearly 2/3 calculations in world trade are carried out in dollars; the dollar serves as a measure of value of many important goods (for example: oil) in the world market; in dollars 3/4 international bank crediting is made (Aleksandr Popov). Changes in the exchange rate of dollar involve deep consequences both for the USA, and for other countries. Increase of its course relatively reduces the volume of export revenue in dollars, quite often involves more considerable, than change of an exchange rate, falling of the world prices, especially on raw materials. On the contrary, decrease in a dollar rate serves as the powerful tool promoting growth of the American export and a pushing off...
Bonds have a number of characteristics that differentiate one issue from another. We are going to define and describe a number of characteristics in detail below.