Dynamical Stabilization of Currency Market †MyAssignmenthelp.com

Question: Discuss about the Dynamical Stabilization of Currency Market. Answer: Introduction: The overall shareholders wealth maximization model and stakeholder capitalism model mainly depict the relevant return, which needs to be conveyed by the company to improve its performance. In addition, stakeholder capitalism model mainly comprise of concerns from employees, society, management, creditors, and shareholders. These concerns are mainly related to the overall profitability, which needs to be attained by the company to increase its overall investment value. The models states the concern for unsystematic risk, while systematic risks encircling the return generation capacity of the company. Both the models mainly allow and force the management to make adequate decision, which could help in attaining continuous growth and profitability from operations (Denis 2016). Debit to Australian company part of the current account and credit to the Chinese firm part of the current account. Debit to Australian resident current account, while credit to Singapore in the current account. Debit to German investor financial account, while credit to US in the financial account. Debit to Indian firm current account, while credit to Australia in the current account. Debit to Australian firm capital account, while credit to Japanese in the capital account. Evaluating and depicting about impossible trinity Impossible trinity is a term, which is adequate comprises of the free capital flow, fixed exchange rate and sovereign monetary policy. In addition, the depicted measures cannot be violated by countries all together, as it might increase the chance of financial crunch. The violation of impossible trinity was mainly conducted during 1997-1998, which dissolved the overall Asian economy. Governments are mainly advised to violate only two factors of the three impossible trinity factors, as it might help in supporting both overall activity and reducing any kind of financial crunch. In this context, Kaltenbrunner and Painceira (2016) mentioned that use of adequate measures could eventfully help the country take up adequate strategy, which might be used in boosting their economic growth without violating the impossible trinity. On the contrary, Beckmann et al. (2017) criticises that there are no theory, models, or assumptions, which could be used in reducing the negative impact of impossible trinity. Currency market strategy mainly comprises of direct and indirect intervention, which is conducted by central bank to control the flow or strength of their currency. In addition, the use of indirect intervention is mainly conducted by the central banks to strengthen or weaken it flow of currency in the market. Both the strategy is mainly used in controlling valuation of the currency of a country. The central banks mainly need to decrease the real rates to increase the flow of currency in the market and in turn devalue the exchange power. On the other hand, the Central bank mainly increases the real rates, which decreases the supply of currency and strengthens its value against different currency (Carfi and Musolino 2014). With the help of direct intervention, central bank mainly purchases the currency or sells is currency to the country to direct affect the overall ability of the currency, mainly increase the chance of. Stating the use of adequate hedging position that might be adopted by the organisation Amount Yen 40,000,000 Particulars Rate Amount Present value Spot 87.35 457,928 Forward 89.5 446,927 436,404 Unhedged position 91.45 437,397 427,099 Table 1: Depicting different values of hedging (Source: As created by the author) Particulars Japan Australian Borrowing 2.00% 1.00% Lending 1.00% 1.50% Borrowed 40,000,000 Amount received 39,215,686 Converted to A$ in spot rate 448,949 Interest amount received in three months 6,734 Amount received at the end of 3 months 455,683 PV of the amount received 444,954 Table 2: Depicting present value of the hedged amount (Source: As created by the author) The money market hedging is identified as the most viable option, as it allows the Australian companys exposure in Japan. Nevertheless, money market hedge use will let Australian company to obtain A$444,954 in 3 months after using discounting factor. While, the forward rate hedge will provide A$436,404 and non-hedge scenario will provide A$427,099. Reference: Beckmann, J., Ademmer, E., Belke, A. and Schweickert, R., 2017. The political economy of the impossible trinity.European Journal of Political Economy,47, pp.103-123. Carfi, D. and Musolino, F., 2014. Dynamical Stabilization of Currency Market with Fractal-like Trajectories.Scientific Bulletin of the Politehnica University of Bucharest, Series A-Applied Mathematics and Physics,76(4), pp.115-126. Denis, D., 2016. Corporate Governance and the Goal of the Firm: In Defense of Shareholder Wealth Maximization.Financial Review,51(4), pp.467-480. Kaltenbrunner, A. and Painceira, J.P., 2016. The Impossible Trinity on Steroids: Inflation Targeting and Exchange Rate Management in Emerging Countries.Development and Change.