Exchange rate

Thus, the exchange rate rather significantly affect the foreign trade of the country, the volume, the efficiency of export operations, as well as on the export competitiveness of our products on world markets. An undervalued currency gives additional contributions to the export and promote the inflow of foreign capital, while imports disincentive. Under these conditions, increases the profitability of capital reinvestment and, conversely, less profitable under these circumstances is export earnings. And with an overvalued currency arises opposite situation - is reduced efficiency of exports and imports increased efficiency. Affect the exchange rate NBU can also change through its discount rate. By changing the size of the discount rate, the National Bank creates conditions for outflow or inflow of foreign capital, thereby affecting the exchange rate of national unity. The increase in interest rates, for example, stimulates the demand for this currency, and increasing its rate. And, for example, reducing the discount rate tends to weaken the currency. This is not conducive to the inflow of foreign capital, but leads depreciation of the domestic credit market and increased business activity. Even to maintain the balance of payments and exchange rate stability of the national currency exchange restrictions NBU sets, with which it is possible to adjust both the trading business entities in Ukraine, and banking institutions. In our country, by the way, the Central Bank sufficiently interesting to use this tool. The exchange rate of the country the following factors: 1. The size of the GDP (at low level, its rate may be artificially inflated.) 2. Of payments (trade) balance (here it is including the regulation of exports and imports, as mentioned earlier). 3. The inflation rate in the country (if the growth rate of national currency falls). 4. The internal supply of money (see above where it was said about the intervention). 5. Political factors (in the case of the unstable political situation in the country investors are in no hurry to invest their money there, the demand for domestic currency falls, the rate decreases). 6. Interest rates (and commercial banks and the NBU discount rate). During 1992 - 2004 years NBU discount rate is constantly changing. Table 1 shows that from 1993 until May 1, 1995 interest rate was consistently above 100% per annum, and from 25.10.1994, the general has reached a critical point - 300% per annum, ie 25% per month. But from 1 May 1993 the situation began to slowly improve, with only once there has been increased 12/1/1995 the discount rate to 110%, and within a month rate fell to 5%. During the following periods observed dynamics to reduce the annual rate of the National Bank. The lowest rate - from 05.12.2002, the - 7.0%. 293% less than 10/25/1994, the! On 9/11/2004, and still NBU discount rate is 9.0% per annum, indicating that a stable situation in the country. In addition the National Bank intends to hold interest rates at this level. Category: Foreign Exchange Market | Tags: Exchange Rates