finc415 hw greece

Topics: Monetary policy, Currency, Foreign exchange market Pages: 6 (2173 words) Published: March 3, 2015
Ryan Flanagan
1. Since April 2013 to the present what has happened to the value of the Yen relative to the USD? See if you can find some more recent articles on Japan's effort to devalue the Yen.
The value of the Yen has decreased. The article said that "The Treasury will pressure Japan to adhere to international commitments and to remain oriented towards meeting respective domestic objectives using domestic instruments and to refrain from competitive devaluation and targeting its exchange rate for competitive purposes”. With the value of the Yen going down, is this on purpose or by freak accident. Japan is smart about this and has a specific strategy. In Japan, the BoJ is buying almost as many of its bonds (about $76 billion per month) as the Fed is buying with QE ($85 billion per month). This is resulting in more bang for your yen/more QE per capita. Here is where it gets sneaky. Expectations that the BoJ will keep expanding its balance sheet have led investors to sell yen. Japan knows it has to act carefully to equal out its domestic policy goals with potential foreign objections. 2. When you are done run a web search. What is the current situation in Greece? Are there other countries in Europe experiencing similar difficulties? How could Europe get themselves into this position? 

Greece is not doing well. Some people want to continue using the euro which a currency provided by the European Central Bank while others want to return to the drachma. The drachma is the fiat currency previously issued by the Greek central bank. This is causing a major uproar in Greece. Politically they are also crumbling. The leaders are persistent with rejecting economic policies that would keep Greece in the euro zone. These leaders are doing nothing to actually help the situation. Argentina is also going through a similar struggle financially. It has defaulted on its debt. With a low credit rating, there was no way this country could continue to operate and Greece might even need to do the same thing. Greece needs to elect better leaders as well as increasing exports earlier on. This would have allowed their depression to be a lot less which would have allowed them to be able to recoup faster. 3. When you are done watching take a position on the question of cooperation -- do you think cooperation will increase or decrease going forward? Come up with a couple of paragraphs.

I think it is hard to tell actually whether it will increase or decrease but if everything ran smoothly in society, it would be smart to increase it. A few tactics are currency boards as well as free floating currencies. Cooperation I think should start with currency boards. This will allow both countries to cooperate together with a commitment to exchange local currency for some amount of foreign currency at a set rate. If the country is in a state of depression, this is a feasible solution if both countries agree to it. This would help businesses who are dealing with inflation. Your example from class about exchanging 2 levs for 1 euro is a great example. You must be able to borrow euros and get the currency in for this to be feasible.

In addition, there comes many difficulties with this strategy. Limiting countries ability to print money could be a problem and either lead to stimulate demand and drown it. It does however eliminate uncertainty of people doing business. It also helps stimulate foreign investment. Limiting government also means you can only spend what is brought in. As we can see, the currency board in Bulgaria still held and is way better off than Greece.

Another example is Argentina and how it moved from managed exchange rate to a currency board in 1991. They locked currency to the dollar. One problem was that value of dollar increased, making the value of their currency increased as well. This make it hard for exporters to be lucrative and sell aboard. Sales dropped, tax revenue decreased and drowned them. Solution was...
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