International Currency Exchange Rates & Monetary Policy Considerations

International currency exchange rates are a mechanism for determining the relative value of one currency against another. Rates are set by the forces of supply and demand. Market participants negotiate an agreed value at which the exchange takes place. There is no one centralized market place for exchange rates but the majority of transactions occur on the Interbank market between the participants who negotiate the agreed price. Exchange rates are essential for maintaining a workable framework for all matters of international trade and commerce. This article will examine the role of exchange rates and how they can influence economic and planning decisions.

Currency exchange rates affect foreign trade. International exchange rates allow countries to determine the relative cost of goods for sale. When one countries exchange rate rises or falls against another, it can create a shift in the way trade and commerce is conducted. Manufacturers and exporters price the cost of their goods in their base unit of currency. If the exchange rate appreciates to a considerable extent then it makes the cost of goods more expensive to the foreign purchaser. This can result in a reallocation of resources as demand for the goods shift to a comparatively cheaper supplier.

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Wealth Management and Monetary Planning

Wealth management can be referred to as an advanced discipline relating to advice in terms of investment which incorporates specialist monetary services and financial planning. The main objectives are providing families dealing with services in retail banking, legal resources, investment management, and taxation advice goals to sustain and grow long-term wealth. Monetary planning can help the individuals who are accumulating wealth or have already done so.

Wealth management can be exemplified through self-governing advisors or huge corporate entities such as Citigold of Citibank and the other extensions regarding services relating to retail banking designed for focusing on customers dealing with retail worthy of high nets. Customers of such type are likely to be categorized as ‘upper retail’ or ‘mass affluent’ clients owing to net worth of theirs, potential products owned by them from bank, assets of their under management, and many other segmentation methods.

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Monetary policy and the term structure of interest rates in Japan.

This paper is investigates the relationship between the Japanese yield curve and monetary policy. In the 1980s and 1990s average bond yields have risen from 5% to 8% and then fallen to 2% and the slope of the yield curve has swung from positive to negative to positive. We are interested in understanding the contribution of monetary policy to these movements in the yield curve.

One motivation for our interest is Japan’s recent experience. In spite of massive increases in monetary base and a zero nominal interest rate, economic growth has remained low and deflationary pressure has not abated. These events are raising new questions about the effectiveness of monetary policy under a zero nominal interest rate policy. Eggertson and Woodford (2003) argue that a monetary authority can still influence economic activity when nominal interest rates are zero by taking actions that affect market expectations about the future time path of variables such as interest rates, inflation or exchange rates. One way to assess the ability of a central bank to affect expectations is to look retrospectively and ascertain the extent to which previous monetary policy surprises have affected bond yields of different maturities. If monetary policy is indeed a potent tool for altering expectations then this should show up in the responses and variance decompositions of medium and long-term bonds yields to suitably identified shocks to monetary policy.

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