Any topic relating to Macroeconomics Essay Example | Topics and Well Written Essays - 750 words

Any topic relating to Macroeconomics - Essay Example The exchange rates have a close impact on the exports and imports of the country because when people exchange goods across borders they want to be paid in their own currency and hence the need to exchange value and an exchange rate arises. There are certain benefits and certain disadvantages associated with each and every trade system and so does the free floating exchange rate, the free floating exchange rate is the basis of uncertainty in the economy because there are no blockades at any end for the free floating exchange rate to be limited, it fluctuates rapidly and hence the environment for trade and investment is not a very feasible one. Another added disadvantage of this type of this kind of an exchange rate is the element of speculation. The advantage of the exchange rate system is that it balances the balance of payments and the governments do not have to worry in this regard. b)Dirty Floating: dirty floating, as the name implies is managed exchange rate systems, these systems are managed by the central bank of the country and it basically determines boundaries within which to keep the exchange rate value, if the rate crosses the maximum value then the central bank supplies more into the market so that the rate falls down and when it rises exactly the opposite happens. The advantage of having such an exchange rate system is that it adds a lot of certainty to the trading and the investment procedures and cracks down on speculative measures. The disadvantage of this system is basically to the government because it has to take measures to control the whole system and also the added responsibility of the balance of payments falls squarely on to the shoulders of the present government. c) Fixed exchange rates: In this type of exchange rate systems the rate is fixed at one point and the government should be ready to buy and sell as soon as there are any