Relevance of exchange rates in monetary policy making Essay

Relevance of exchange rates in monetary policy making - Essay Example These actions may include increasing bank interest rates or decreasing the supply of money in the economy. The chief aims of such monetary policy are currency stability or price stability, achieving full employment and economic prosperity of a nation (Zettelmeyer & Zettelmeyer, 2003). Monetary policy rests on the correlation between interest rates of an economy and the total supply of money in the economy. It is natural that governments play a primary role in economic growth and stability through monetary policy especially in small rich economies. By creating monetary policies, central banks can influence the intensity of the supply of money on credit in the economy and, therefore, minimize extreme price fluctuations and improve economic growth. This control is made easier through clear knowledge of the monetary exchange rate that a country chooses to adopt (Jung, Choi & Jung, 2003). Relevance of exchange rates in monetary policy making Concisely, exchange rate refers to the rate at which one country’s money can be changed for another, that is, the price of one country’s currency in another country’s currency. Exchange rate is used when converting one currency to another or for engaging in foreign exchange market. The factors that influence exchange rates include political stability, inflation and interest rates. Nevertheless, exchange rate can, by itself, influence certain factors such as inflation and policy formulation and implementation (Ireland, 2008). For small economies and certain medium ones that are still very open to capital flows and trade, any changes in the value of exchange rate have a vital influence on the real economy or inflation. For successful pursuit of macro-economic stability and achievement of sustainable growth, prudent choices of exchange rate regime and appropriate policies are imperative (Ireland, 2008). The exchange rate and price stability of a nation's monetary value define its economy. Iceland, for example, although is a small country, has enjoyed a long period of stability of economic prosperity with unemployment falling to near zero level. Iceland is an ideal and extreme example of a small open economy. Iceland has a population of 300,000 with a GDP of 8.5 billion USD. Like other economies, Iceland also faces trade and economic problems such as market fluctuations and terms of trade that makes it vulnerable. However, Iceland is endowed with a huge chunk of natural resources with a highly educated labor force and well established economic policies. The paramount indicator of stern overheating of an economy is inflation and Iceland picked it (Breedon, Petursson, & Rose, 2011). However, the key to controlling inflation is good management of the exchange rate and its coordination with fiscal policy (Jung, Choi & Jung, 2003). Several available models of exchange-rate determination entail an unambiguous effect of monetary policy. According to Argy, Grauwe and Polak (1990), this is explaine d in terms of money aggregates on the exchange rate where any increased rate of monetary growth in one country, against the surroundings of a stable claim for money tends to decline the nominal exchange rate. Most theoretical models predict that, in the end, an increase in one country’s money growth wholly reflects in the price level with the relative increment in the latter counteracted by depreciation of the exchange rate. When implementing a monetary policy care must be taken to ensure that the taxpayers do not lose much of their money (Zettelmeyer & Zettelmeyer, 2003). In the long run, countries with moderately rapid money expansion will lean towards having high nominal interest rates, as well as high inflation. However, in short

Environmental effects of oil spills Essay Example | Topics and Well Written Essays - 750 words

Environmental effects of oil spills - Essay Example ics (1997), an oil spill is â€Å"oil, discharged accidentally or intentionally, that floats on the surface of water bodies as a discrete mass and is carried by the wind, currents and tides. Oil spills can be partially controlled by chemical dispersion, combustion, mechanical containment and absorption. They have destructive effects on coastal ecosystems† (par. 1). The ecological crisis brought about by oil spills displaces a global equilibrium pattern based on the dwindling supply of marine resources. As an environmentally ethical dilemma, oil spills need to be closely evaluated and addressed to take drastic actions to restore balance and prevent further damage to the marine ecosystem. According to Oracle ThinkQuest, oil spills are actually classified into two groups: accidental and from operations (n.d., par. 1). Accidental oil spills are generally caused by collusions, fires and explosions, hull failures, and groundings (ibid.). On the other hand, oil spills from operations â€Å"occur when ships are carrying out routine operations at ports or oil terminals, but the majority of such spills are small, with 93% of them producing a spillage of less than 7 tonnes† (Oracle, n.d., par. 3). As indicated, two specific activities are encompassed within the scope of oil spills from operations, to wit: â€Å"loading/discharging: commonest cause of oil spillages (either during routine operations or resulting from accidents), with 3070 occurring between 1974-1999; and bunkering: the least common operational oil loss with only 566 occurring between 1974-1999† (ibid.). Whatever the causes are, the fact remains that the oil spilled in bodies of water pose dangers to marine life and to the environment. The International Tanker Owners Pollution Federation Limited (ITOPF) is â€Å"a not-for-profit organization established on behalf of the worlds ship owners to promote an effective response to marine spills of oil, chemicals and other hazardous substances† (ITOPF: About, 2010, par.