Friday 31 May 2013

Benefits from flexible Exchange Rates

To all who wish to get on some important advantages from Flexible Exchange Rates, this article will surely be of good help in figuring out requisite points. Flexible rate system is claimed to have some following benefits

It acts as a shock absorber:- An economy remains protected from shocks in case of fluctuating exchange rates especially in the domestic economy. Economy can get brutally affected from the external world but time to time generated fluctuations acts as absorber to all disharmonies and stabilizes the condition within the country.

Contributes to economic development:- Not only does flexible exchange rates has protected from external world economical threats but also pools to the nation’s development, also aiding in achieving high levels of employment rate in the country. The exchange rates can be swapped as per the requirements in the monetary policy, of the nation to accomplish the strategies of the nation.

Independent policy:- As in this system the nation has a free will to adopt any monetary policy to take care of the monetary affairs. The monetary policy of any nations remains unaffected by the monetary policy of any other nation. Therefore the monetary policy of flexible exchange rate protects the nation from economic policy fluctuations of other nation.

Contributes to International Trade:- flexible exchange rate system does not promote control in exchange instead people are free to trade. Restrictions have been removed over the international trade and therefore free movement of capital and money has been ensured between the countries.

For Currency area fixed rates are not necessary:- For exchange of rates in currency areas it is not required to have stable rates. This again is a benefit which can ideally draw from flexible exchange rate. Fixed rates do not restrain speculation: - The only problem with flexible exchange rate system is that it does entertain speculation which is not an advantage indeed a setback. Speculation indeed destroys the value of the exchange rate and leads to inevitable currency rates in the future.

Demand and Supply:- Market forces of demand and supply usually determine foreign exchange rate system. Market gets automatically cleared with due fluctuations in the exchange rate of the flexible system. It restricts the possibility of any scarcity or surplus of currency in the market which does not really possible.

There are numerous advantages from flexible exchange rate system. Above are few which can be kept in mind while availing one.

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