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The steady increase in the number of international transactions require more smooth settlement process, which involves a currency conversion to another; and for this reason the same afternoon mainly the forex market. But the imbalance between the demand for and supply of currencies in the international arena in a continuous cause fluctuations in currency exchange rates.

As the exchange rate is directly linked to economic stability, the central banks in all countries take it upon themselves to control the forex market closely and take adequate measures to protect the interests of the countries they represent if the need arises. In this regard, central banks play an important role in determining currency exchange rates, and that by changing interest rates; whereupon the central banks indirectly stimulate traders to buy the country's currency by raising interest rates (from the perspective of the high return on investment) This process paid the value of the currency issued by the central bank this upward compared to other currencies.

But this process is not only one of the methods adopted by central banks to support the currency exchange rate there are other ways more complex multi-based central bank implemented to prevent the economy from any illness. It is important before we proceed to discuss strategies to understand the basics of the foreign exchange mechanism.

The impact of foreign exchange rate on the economy
Country's currency exchange rate affects the direct and indirect impact on the various sectors of the economy of the country as follows:

The impact of the exchange rate on the economy
A) International trade
Can not be of the manufacturing sector to grow only when the country has enough foreign cash. When the deteriorating exchange rate strongly the value of goods that can be purchased match each equivalent of currency decline, which depletes quickly foreign exchange resources, and lack of a foreign currency or lack thereof to the difficulties in importing essential goods and raw materials and machinery required machinery. When the supply of vital goods required for them, it is non-existent and there is no surplus available for export, which would result in a swirly effect affects the growth of the country's economy.

B) the services sector
Benefit the local economy when the country's currency exchange rate strong; because the customers from other countries are forced to spend the largest amount in order to buy the equivalent of one dollar from the service (tourism, banking service, etc.).

C) the transfer of technology
His country has a strong currency better bargaining ability. So it becomes easy for him to buy advanced technology without draining its foreign exchange reserves.

D) international remittances and capital flows
It will not falter country with the strong currency to meet its debt obligations; hence, investors are facing problems in converting Maathm / profits; which encourages the flow of capital and supports the local economy better.

Different ways to express the exchange rates
The exchange rate is the value that is then the currency of one country to another country currency converter. There are different ways to express exchange rates, these methods are:

Different ways to express the exchange rates
A) the normal price and the actual price
-Called price determined by the controlling entity in exchange rates (central banks, for example) or the average real price, while the price determined by market forces based on supply and medicine is called the actual price. It revolves around the actual price of the normal price.

B) the spot price and the forward price
-Called price that is has a currency delivery to the buyer immediate recognition of the spot price, the exchange rate has a currency that is being delivered at a future date is called the forward price.

C) single and multi-Price Price
There is usually only one exchange to the country's currency rate, but in rare cases, the country adopts a pricier one or two prices or even three different exchange rates before the currency of another country. For example, it may adopt a different country two prices one for exports and one for imports.

D) the purchase and sale price
It offers traders in the foreign exchange market (banks and financial institutions) two prices, one low and one high for customers who want the country's currency sale and purchase order. Low price is the purchase price and the high price is the selling price.

E) the appropriate and inappropriate prices
If currency exchange rate rose against the currency of another country, it is called an appropriate price, and vice versa.

F) Rate of official and unofficial exchange
The official price is the pre-specified exchange rate being Accordingly international transactions. If the business has between countries at an exchange rate determined by external market forces, it is referred to in this case as the unofficial exchange rate.

G) fixed exchange rates and flexible
If you are to maintain the exchange rate at a pre-set level artificial ways through intervention in the exchange market or otherwise, it is called the fixed exchange rate. If allowed market forces to determine the exchange rate, it is called a flexible exchange rate or floating.

How is the exchange rate?
There are three theories developed by economists and research centers to determine foreign exchange rates, and these theories are:

Determine the exchange rate
A) mineral parity theory
Theory based on the gold standard; A country that follows be the gold standard of gold or currency convertible into gold at a fixed price. The ratio between that currency and the currency of another country follows the gold standard as well be fixed (exchange rate or metallic mineral concession). It does not follow any country of the gold standard at the moment; and then, the metal valence theory lost its importance.

B) the theory of purchasing power parity
It was first revised this theory formulated in the viewable image of the Swedish economist Gustav Cassel Professor in the year 1922. Under this theory of currency paper that the two currencies exchange rate be equal to the outside of the purchasing division of internal strength.

We conclude from the theory that high prices in a country leads to the decline in the value of its currency (or purchasing power). Despite the possibility of the application of this theory to all currencies, but they overlook other external factors (speculative activities or inflows and outflows of capital or otherwise) flows affect the exchange rate.

C) the theory of the balance of payments or the supply and demand theory
Exchange rate according to the modern theory of exchange -alta unpopular at the moment as Almaaar- equal to the required foreign currency and supply. Also, the exchange rate is the price point at which there is then drawn between demand and supply forces.

When there is a surplus in the balance of payments, the demand -obaltala Abv- price will drop because of the free flow of foreign currency. On the other hand, a country that is struggling will be a negative balance of payments in order to manage its needs of foreign exchange reserves; and then, will increase demand and increase exchange rate.

Characterized by comprehensive theoretical and practical realism and the ability of the application. Although the theory is accepted widely, but still draws criticism because of its assumptions regarding the balance of payments.

Why exchange rates are constantly changing?
There are many factors contributing to the volatility of foreign exchange rates, and these factors are:

Sudden or gradual change in the scenario of the supply of foreign exchange is required of him.
Changes in the volume of imports and exports.
Monetary policy of the country amendments.
Inflows and outflows of capital from the stock market and other industries.
Changes in economic conditions (inflation and deflation)
Geo-political changes.
Changes in the banking sector.
Increase or decrease in the average income of the household sector contribute indirectly change in exchange rates.
Public morale.
The activities of speculators.
The tremendous developments in technology gradually affects the exchange rate in a positive way.
Meaning foreign exchange controls
The term foreign exchange controls refers to the process of restricting transactions involving foreign currencies either by the government or central bank. When you activate the control on foreign exchange, market forces will not be able to operate freely because of the restrictions imposed on them; and then, the exchange rate is different from the price at which it will be found in the free market scenario.

Weak economies tend to activate the control over the exchange rate structure to achieve economic stability. Indeed, the International Monetary Fund At reality Alomr- has put the letter under the name of Article 14 allows for economies undergoing transformation alone control over exchange rates. But despite this provision, the majority of countries use some form or another form of control over the exchange rate controls in these days to protect the economy from unexpected fluctuations in currency exchange rates.

Distinctive features of the control on exchange rates
When baptized one of the governments or central banks to regulate inflows and outflows of foreign exchange inflows, the prevailing economic system look like the following distinctive features:

It remains all types of international transactions involving foreign currencies handled centrally.
The central bank has a monopoly on buying and selling currencies in the foreign exchange market.
Traders in the foreign exchange needed to obtain a license from the Central Bank.
Central Bank reserves the right to prioritize the allocation of foreign exchange to meet various obligations.
The central bank buys remittances received from all types of international transactions (export and remittances of all kinds) of the local currency and provides for them.
The Central Bank establishes the official exchange rate and management.
Importers committed to providing a long list of the appropriate documents so that they can buy foreign currency from the central bank.
The need for foreign exchange controls
There is theoretically no restriction on the appearance of a paper currency or eclipse; and then, resulting from negative changes in exchange rates can not be the case where the control of economic instability. Increase the strength of the currency of a particular country (high exchange rate) have -buge Aam- positive effects (increase in productivity and a decrease in unemployment and a rise in economic growth and stimulating to reduce expenses and so on). However, if the increase in the currency's strength due to speculative activities, it may lead to a recession. The Swiss franc of the classic examples of currencies that are controlled by speculation; The problems existing in the United States and the euro zone went investors look to Switzerland which is seen as a safe haven for investments; and then, the Swiss franc usually become denominated in the highest of its value and forced the central bank to intervene to prevent the country from slipping into a recession.

Weak currency leave undesirable effects on the economy; it is a negative impact on imports and inflows of funds received which represent the backbone of any healthy economy headers. So there is no official central bank allows its currency to the free fall, there is no country in history has succeeded in out of the abyss of debt and recession in light of the weakness of its currency.

In light of the facts that we have mentioned earlier, we have a clearer importance of monitoring exchange rates closely and intervene -If called necessity, to maintain the integrity of the economy and the sustainability of growth.

The strategies adopted by the central banks to control exchange rates
Basically, it can be classified all the means adopted by the central banks to control exchange rates under two groups, namely:

A) direct and indirect means
If control over the exchange rate strategy affect an immediate impact on the exchange rate, it is called direct method. If the manner affect the other sectors, but it ultimately leads to change the exchange rate, it is called the indirect method.

B) means single side and bilateral and multilateral side
It means a unilateral strategies implemented by the central bank in the country without taking into account the views of other countries. The bilateral and multilateral means represents the control mechanisms on exchange rates are applied by mutual agreement between two or more countries.

Control over the exchange rate strategies
Means unilateral
A) to intervene in the exchange rate or the exchange rate support
This strategy is a form of soft forms of interference in the market. In this strategy, the central bank in the country to intervene in the market to get the price of the currency to a desirable level if there were fears that speculators push the pair to very high or very low.

If the central bank bought the currency to raise its price structure, it said about this case, "support the increase." Similarly, the currency is said to be "supported by a downwardly" when the central bank intervenes in the market to reduce its exchange rate. It should be noted that the intervention does not cause a permanent change in direction.

B) restrictions on foreign exchange
The central bank can influence the exchange rate by controlling the supply of currency required. The following measures represent the most Following measures to keep the exchange rate under control:

1. Ban accounts
It is under this system ban foreigners own bank accounts, but the central bank has -If there were also urgent need to transfer money from all banned accounts to only one account. But it creates a bad impression about the country and leaves permanent negative effects on the entire economy.

2. multiple exchange rates
The Central Bank under this system by subjecting foreign currency for full control and displays different prices to buy and sell the currency on the part of importers and exporters in order. This is done in order to control the capital out of the country. You can justify it as a kind of rationalization of foreign currency using price instead of volume. This system is complex and brings on the central bank, but more trouble.

3. rationalize foreign exchange
Central Bank alone is the master of foreign exchange to be in this way, and decides the amount of foreign exchange granted to each application received. It may not be in the system for individuals or institutions that keep foreign currency, not only pay attention to the urgent needs.

4. reserve balance of exchange rates
The Central Bank in the United Kingdom following the country's exit from the gold standard to establish a fund called "a reserve balance of exchange rates" in 1932 in order to prevent unwanted volatility in the exchange rate of the pound sterling. Adopted this strategy after that of the United States (exchange rate stability fund) and other European countries, including Switzerland and France.

Means the bilateral and multilateral side
A) payment agreements
According to this system, entered into creditor and debtor countries repay the agreement in order to overcome the delay in international transactions settlements, The Convention on the roads that are followed to control the fluctuation in exchange rates, these include roads in the usual -aly but not limited to distribution of a controlled foreign and rationalization of currencies foreign currency.

B) clearing agreements
The application of this strategy to control the exchange rate through the conclusion of an agreement between two or more countries, under which each of the exporters and importers in order to get receipts and payments are performing in their local currency. Clearing an open account with the Central Bank is used for this purpose. This approach avoided the need for foreign exchange, which in turn reduces the volatility of the exchange rate. Use this system in Germany and Switzerland during the Great Depression in 1930.

C) a standstill agreements
According to this system, the central bank through -mn decision to postpone repayment to convert short-term debt to last long-term. This process allows enough time respond value of the debt; and then, raise the downward pressure on the exchange rate. Germany applied this system in 1931.

D) Compensation Agreement
This process involves a contract swap between the two countries, one being a net exporter and the other a net importer. And be equal exports and imports value; hence, there is no need for foreign currency and the exchange rate remains stable.

E) The conversion of debt standstill
The Central Bank-according to this System- to ban all forms of payments to creditors outside the country, and the value of the debtors to pay their debts in local currency to the central bank, which in turn later payment when foreign exchange reserves are improving in general.

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