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foreign exchange

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Transcript of foreign exchange

How Central Bank Regulate FX Market CENTRAL BANK OF THE REPUBLIC
OF TURKEY Goals -foreing Exchange market stability

-price stability

-Economic growth

-Financial market stability

-interest rate stability Outline -Central Bank Goals
-Structural Tools
-Cyclical Tools
-Foreign Exchange Market Policies
-Previous FX Policies
-How central bank regulate FX market
-Why central bank regulate FX market
-What if central bank don’t regulate FX market
Structural Tools -Leverage Based Reserve Requirements

-Reserve Options Mechanism

-Based Reserve Requirements Cyclical Tools -Policy Rate
-Interest Rate Corridor
-TL Liquidity Management
-FX Liquidity Management Foreign Exchange Market
Policies Monetary Policy Exchange Policy Previous FX Policies --Foreign Exchange auction
--Required reserve ratio
- Reserve option mechanizm (ROM)
--Central bank FX reserves Foreign Exchange auction Required Reserve Ratio Central bank FX reserves Greenspan-Guidotti Criteria Why Central Bank Regulate FX Market --Price stability

--Capital inflow – outflow

--İinterest rate

--Export – import balance What if Central Bank don’t Regulate FX Market --Export import imbalance

--Unstable price levels

--Dolarization problem

--Currency wars Currency Wars is the process by which the monetary authority  of a country controls thesupply of money, often targeting a rate of interest for the purpose of promoting economic growth and stability -expansionary and contractionary monetary policy

--expansionary monetary policy:the increase in the total money supply In economics, expansionary policies are fiscal policies, like higher spending and tax cuts, that encourage economic growth.

--conctractionaty monetary policy : the reduction in the total money supply
 In most nations, monetary policy is controlled by either a central bank or a finiance ministry -inflation targeting regime: Inflation is a monetary policy strategy
-Inflation targeting is an economic policy in which a central bank estimates and makes public a projected, or "target", inflation rate and then attempts to steer actual inflation towards the target through the use of interest rate changes and other monetary tools. -Price stability: a situation in which there is little fluctuation in the price of goods or services overall.

-The objective of price stability refers to the general level of prices in the economy .The situation whereby the prices of goods and services  offered the marketplace either change very slowly or do not change at all. Factors affecting this include employment and inflation

-when people make a decison for consumption and saving,they dont need to take into account the rate of inflation refers to a lower extent.

-financial stability: helps to increase the effectiveness of monetary policy The purpose of the central bank's international payments to be in a specific order to influence the exchange rate,balance of payments and foreign exchange rate policy measures within the scope of their all.
the central bank does not have a nominal or real exchange rate target in Exchange rate regime -floating exchange rate regime: depending on supply and demand of foreign currency . A floating exchange rate or fluctuating exchange rate is a type of exchange rate regime  wherein a currency's value is allowed to fluctuate according to the foreign exchange market. A currency that uses a floating exchange rate is known as a floating currency 2002-2005 there were implicit inflation regime
2005 determined as the transition year and completed the necessary technical preparations
applied to the floating exchange rate regime but also foreign exchange reserves important
After 2006: explicit inflation targeting in 2006 began to be implemented inflation targeting in monetary policy and in Exchange policy applied to the floating exchange rate regime

Along with inflation targeting, the Central Bank will continue to implement the floating exchange rate regime in 2007 and after . Reserve option mechanizm (ROM) Dollarization -In 2001 crisis 79% of total deposit was foreign currency

-60 - 70 percent of imports consists on raw materials and semi-finished materials , the floating exchange rate reduces imports and promote inefficiency. -Example of China

-Central Bank of Japan declared that they will increase their monetary base from 67 trillion to 138 trillion By the year 1989, "Decree No. 32 on the Protection of the Value of Turkish Currency" and allowed to make economic agents and the Turkish currency freely convertible foreign exchange transactions were announced in a relatively flexible exchange rate regime was adopted. -The Central Bank in foreign exchange market for national assets, foreign assets buying and selling them to intervene
-Decision to intervene in many countries, given the economy ministry and the central bank or treasury is carried out by the authorities EXCHANGE MARKET POLICIES AND CENTRAL BANK INTERVENTIONS Ömer Faruk Karamenderes 09203079
CemileTuğçe Düztürk 09203053
Elif Yardımcı 09203125 Foreign exchange market The foreign exchange market provides the physical and institutional structure through which the money of one country is exchanged for that of another country, the rate of exchange between currencies is determined, and foreign exchange transactions are physically completed Functions of the Foreign Exchange Market -Transfer of Purchasing Power

-Provision of Credit

-Minimizing Foreign Exchange Risk Transfer of Purchasing Power Transfer of purchasing powe is necessary because international transactions normally involve parties in countries with different national currencies. Each party usually wants to deal in its own currency, but the transaction can be invoiced in only one currency -Provision of Credit:
Because the movement of goods between countries takes time, inventory in transit must be financed

- Foreign Exchange Risk:
The foreign exchange market provides "hedging" facilities for transferring foreign exchange risk to someone else. -fixed exchange rate regime determination of exchange rates by official authorities. And this occurs when the government seeks to keep the value of a currency fixed against another currency. e.g. the value of the Pound is fixed at £1 = €1.1 and another example gold standard Monetary and Exchange Rate Policy for 2013 Increased volatility in risk appetite and short-term capital flows following the global crisis accompanied by the growing awareness regarding financialstability led the central banks to seek alternative policies. In this context, the Central Bank of the Republic of Turkey (the CBRT) has gradually introduced a new monetary policy framework as of late 2010 through modifying the inflation targeting regime that has been implemented since 2006. The new frameworktreats financial stability as a supplementary objective without prejudice to price stability. By definition, any central bank with a financial stability concern, takes macro financial risks into account while implementing the monetary policy. Having become more common among the central banks after the global crisis, this approach does not ignore macroeconomic imbalances and risks accumulating in the financial system while aiming at achieving price stability. The central bank will continue to implement floating exchange rate regime in 2013. The foreign exchange rate is determined by supply and demand conditions in the market under the floating exchange rate regime Floating exchange rates psychologicaly makes people escape from turkish lira and promote to them dollarize their assets. This unfavorable situation of depositors budget and plans affecting businesses and the economy by removing the medium and long term, and making the very short-term speculative paths are taken. ‘’Dollar is our currency but your problem’’
John Connally
USA Treasury Secretary 1971 BIBLIOGRAPHY http://www.tcmb.gov.tr
www.ecb.europa.eu Beggar Thy Neighbour Policy iPad would be 16 000 $ if its entirely produced in USA
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