Economics Essay Example | Topics and Well Written Essays - 1500 words - 4

Economics - Essay Example Indeed, the currency exchange rate policy must be geared towards leveling the global financial playing field. The prior Bretton Woods agreement and the current United Kingdom government’s policy determined the nation’s currency exchange rate. The variance in the United Kingdom currency in relation to another country’s foreign currency may translates to either a currency fluctuation gain or a loss. Romain Veyrune (2007) reiterated the fixed exchange rate system is defined as a pegged exchange rate. The exchange rate of the nation’s currency is matched to another nation’s currency. Likewise, the nation’s currency may also be matched with a precious metal like Gold. The main purpose of the unique monetary rating system is to make the nation’s currency stable, the British pound, in relation to another country’s pegged currency or precious metal. One of the major purposes of the fixed exchange rate system is to stabilise trading betw een the two nations. Many companies can make predicting the current and future sales, purchases, and other currency related transaction between country with the currency that is pegged against the other nation’s currency and the country whose currency is used as the basis for the nation’s currency. ... The electronic currency, e-gold, found in the internet website, www.e-gold.com, is an internationally accepted currency that is pegged or fixed on the value of gold at the time of each sale or purchase of goods or services. Here, the person’s receipt of 20 e-gold currency is pegged the average world market price of gold. As the gold value increases, the value of the 20 e gold currency amount increases; as the gold value decreases, the value of the 20 e gold currency amount decreases. Thus, the value of one e-gold may increase or decrease depending one world value of gold or the demand value of another nation’s currency. Fernando Goncalves (2008) opined the floating exchange rate system is grounded on the economic supply and demand of the nation’s currency in relation to the currency of another nation. Under this system, the currency exchange rate varies depending on the economic situation at the time of the exchange. Under the demand economic principle, the incre ase in the demand for one currency increases the value of such currency. On the other hand, Callum Henderson (2006) reiterated a decline in the demand for a certain currency generated a decline in the value of such currency. In layman’s terms, a Chinese having a strong need to use the American dollar to purchase American may be willing to â€Å"buy† or exchange RMB 10 for each American dollar. On the other hand, the American having a strong need to â€Å"buy† or get the Chinese currency, Yuan, can be willing to exchange one American dollar for only RMB 7 for each American dollar. The British pound is based on the fluctuating or supply and demand economic pricing policy in