Globalization and trade Essay Example | Topics and Well Written Essays - 500 words

Globalization and trade - Essay Example The main drivers of international trade are: Exchange rates Regimes This is the most significant factor affecting international trade. Various nations have implemented the use of different rates of exchange regimes. The picking of the rate of exchange has been in a way controversial without agreements upon the one considered most effective rate of exchange regime in the process of minimising protectionism. The demand and supply for the currencies as well as the resultant relative values can impact the demand for exports and imports. As demand and supply for currencies vary, the values of the same currencies also vary. If the currency is strong then imports are less expensive, and that leads to increased demand for imported products and vice versa. Figure 1: Market price for foreign currency P2 S Price of foreign currency P1 in U.S Dollars D2 D1 D1 Q1 Q2 Historical analysis shows us over time nations used following types of exchange rate regimes. The fixed rate of exchange regime the given central bank ensures maintenance the rate of exchange (Mundel 1963). In the regime of floating rate of exchange; the responsible central bank often never comes into intervention. (Fleming 1962)The controlled exchange rate, when exchange rate is determined by interaction between the intervention of the state and the relationship between demand and supply. (Burr 1960)