TAKE HOME QUIZ 3
Question 1
The people that are drafting and voting for currency valuation arehaving much concern about it. The valuation of currency has appearedto be a complex undertaking that is almost unachievable by anyinstitution or government. Many economists acknowledge that it isdifficult to calculate the appropriate value of currency that acentral bank should buy or sell. The economists that have determinedthe valuation of currencies have used various proofs to justify anyvalue they have given on the currencies. The situation hascomplicated the processes of standardization of the value of currencythat a country can use to determine the trading between the countriesinvolved in the process.
Some people think that making a legislation to influence the currencyvaluation between different countries is a difficult task. Theunderstanding of the people is that each country has its monetarypolicies and legislations that determine what it could do with itscurrency that could be independent of the other nations in the world.The situation means that it is impossible to have a proper strategythat can influence the government to change their policies.
Question 2
The International Monetary Fund (IMF) exists to ensure that currencyregimes in the world are stable. The IMF has established differentmeasures through which it can manage the relationships betweencountries that are in its membership. It has been difficult for IMFto determine the “Fair Values” of currencies that centralbanks of the different country buy or sell. The understanding hasintroduced a difficult situation because the countries that aremembers have the sole control of what they should do in the country.The provisions for the IMF in the prohibition of manipulation ofexchange rates have been complex and difficult to apply in manycountries. The situation has meant that many countries in the worldcould be applying the provisions in the wrong way or could beignorant of their importance. The IMF has not had precisecalculations for the determination of the appropriate exchange ratethat a country needs to undertake. The situation makes it difficultto determine the countries that have violated the fair valueregulations and those that the IMF could punish to maintain thebalance of trade.
Question 3
The fair value of the currency is a dynamic aspect of trading thataffects different countries in the world. The fair value ofcurrencies in the country depends on the situation of trade betweenthe different countries that are in business. In some situations, theamount of the currency that a central bank in a country may buy orthe one it could sell depends on the value of the export and theimport that the country makes to different countries. The deflationor the inflation of a national currency might happen through itsoverproduction in the country and such could lead to a reduction orincrement of the value of the currency. The change of governmentmonetary policies can affect the situation of the market in which thecountry may have to change to adapt to the new situations that arise.The fair value may change to suit the production trends in thecountry that could demand increased imports or exports. Somegovernments in the world may change their currency value to deal withtheir trade partners.