Emerging economies and exchange rate regimes

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308FIN-INTERNATIONAL FINANCE
Dr. Mital Bhayani
Emerging Economies and Capital Movements
1
SanjivaniCollegeofEngineering,Kopargaon
DepartmentofMBA
www.sanjivanimba.org.in

2. www.sanjivanimba.org.inwww.sanjivanimba.org.inDept. of MBA, Sanjivani COE, Kopargaon
At the End of this video you should be able to:
ü Explain the fundamental “Trilemma” that affects the design of any
exchange rate system.
ü Distinguish between a free float, a managed float, a target-zone
arrangement, and a fixed-rate system of exchange rate determination
ü Describe how equilibrium in the foreign exchange market is achieved
under alternative exchange rate systems, including a gold standard
ü Identify the three categories of central bank intervention under a
managed float
Session Learning Outcome

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1. No legal Tender
2. Currency boards arrangements
3. Conventional Peg
4 . Stabilized arrangements
5. Crawling Peg
6. Crawl Like arrangement
7. Peg exchange rate with horizontal
band
8. Other managed arrangement
9. Managed Float ( Float)
10. Floating
IMF classification of exchange rate regimes

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Free Float
16%
Managed Float
18%
No legal tender
7%
Pegged to Hard
currencies
6%
Mixure of fixed
and float
53%
Sales
Exchange rate regimes At present

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BRIC Exchange Rates (Normalized to 2000)

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• Brazil: Managed Float
• India: Managed Float
• China: Crawl Like Arrangements
• Russia: Almost Managed Float
Current Exchange rate regimes of BRICS economies

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Emerging economies capital controls

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• Low Fiscal deficit
• Low Inflation
• Stable exchange rates
• Low NPAs
• Adequate Forex Reserves
• Current Account deficits should be low
• Debt Servicing ratio should be low
Preconditions for Complete Capital Account Convertibility

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Thank You!!