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Essay / Research Paper Abstract
This 2 page report discusses the floating exchange rate system and how it generates self-correcting changes and eliminates balance-of-payments deficits and surpluses. What happens when a country adopts a fixed exchange rate and the 'defends' its currency when investment funds dry up is also briefly discussed. The example of Thailand is used to explain the concept. Bibliography lists 2 sources.
Page Count:
2 pages (~225 words per page)
File: D0_BWfloat.rtf
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Unformatted sample text from the term paper:
and 1995, Thailands economy was the worlds fastest-growing economy. Only two years later the country found itself reeling from its slowest growth since the 1960s, the bahts depreciation and
the subsequent closure of 58 indebted financial institutions. Basic tactics for dealing with global markets, dependency, and debt in the early days of
industrial and social progress of the "new" Thailand often involved centralized, controlled economics, with development efforts guided paternalistically by the government. Government marketing boards, protective tariffs, fixed prices for
export goods, subsidized prices for food staples, and long-range development plans were common practices in Thailand and in other similarly developing nations. Thailand pinned its economic hopes on free enterprise
and market forces rather than on central planning. The impact of financial market development and liberalization on money demand behavior in Thailand (as
well as in Indonesia, Malaysia, and Singapore) since the early 1980s has resulted in continuing instability in the interaction of money growth, economic activity, and inflation. According to Dekle and
Pradhan (1997), rapid growth and ongoing changes in financial markets has suggested that policy needs to be guided by a wider set of monetary and real sector indicators of inflationary
pressures than is currently being imposed. The feasibility of alternative policy frameworks -- including nominal exchange rate targets, and inflation targets - must be studied in the context of substantial
and sustained increase in foreign capital inflows. For thirteen years, the baht was firmly pegged ("fixed") to a basket of currencies dominated by
the almighty American dollar. Such government-engineered stability helped the economy grow eight percent year after year, specifically on the back of low-cost imports. But in the 1990s, disreputable
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