Sample Essay

A fixed exchange rate system implies that the level of rates is fixed relative to a collection of currencies and the fluctuations in the exchange rate are minimal. In a flexible exchange rate system the exchange rate floats freely and is established depending on market conditions such as the level of demand and supply of a country’s currency. Saudi Arabia, Morocco, Thailand and China follow fixed exchange rate systems while USA, Australia, Japan and Switzerland have flexible exchange rate systems (Walden & Thoms, 2007).


A managed float is quite similar to a free floating exchange rate where exchange rates fluctuate based on market conditions but the basic difference is that countries intervene through their central banks to adjust exchange rates by buying or selling currencies. The major disadvantage of a free floating exchange rate is the substantial decrease and increase in exchange rates due to free trade in the currencies and manipulation by major players of the market. This leads to a major intervention by central banks to adjust the relative exchange rates which entail a managed float system.


International trade affects the citizens of developing countries in various ways. If the developing country exports goods and services to a country which has a higher exchange rate then the country would benefit from such transactions with respect to foreign reserves. The imports from such countries with higher exchange rates would increase the price of machinery and technology. International trade also directly affects the overall economy of a country which in turn affects the citizens of that country with respect to higher prices and taxes. The increase in exports of a country increases the manufacturing of goods which entails a higher employment ratio. If the imports increase substantially the internal growth of the country is affected where local manufacturers of similar goods are forced to lower prices or limit operations.


The importance of a clear and enforceable property rights system is quite high when a country is converting to a market-based system of resource allocation as the system would define clear rights of property, the rights to exchange property and the protection of these rights. Market based resource allocation requires that resources be freely exchanged in a market but if a system of property rights is not clearly defined then these resources cannot be allocated or exchanged freely. A clear defined system of property rights also helps in ensuring the protection of private property from governments.


Low agricultural productivity in developing countries is the result of various factors which include improper allocation of human resources, lack of proper technology and research in the field of agriculture, imbalanced and inconsistent government policies, political conflict and instability and low level of prices offered by the government to various agricultural components such as vegetable and dairy farms (Zepeda, 2001).

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