Exchange Rate Regime Tendency and Regulations Essay

Exchange Rate Regime Tendency and Regulations - Essay Example These variables affect conditions in the local capital market within emerging markets. It is the obligation of these markets to identify the links between emerging markets and the global markets. They, therefore, deepen local markets in emerging market countries. An international capital market includes all transactions with an international dimension (Woepking, 2007). It represents a number of closely integrated markets. The foreign exchange market is forming a major component of the international capital market. The world’s major financial centers are; Singapore, London, Hong Kong, New York, and Paris. New securities are issued in primary markets while a majority of capital transactions take place in secondary capital markets (AÃŒ rvai, & Heenan, 2008). The spot market involves the sale of goods for cash and their delivery done immediately (Cuthbertson, & Nitzsche, 2001). A futures market involves transactions of goods and their delivery completed on a specified future date (Kline, 2000). Theory offers numerous insights to the possibility of linkages between the exchange rate regime and macroeconomic performance. A country’s exchange rate regime is classified as either â€Å"fixed† or â€Å"floating.† A country that operates a fixed (pegged) exchange rate regime has its exchange rate tied to another country’s currency. This regime is set by the government or central bank of such a country so as to maintain its currency’s value within a narrow band. A floating exchange rate regime is concerned with the demand and supply for a country’s currency relative to other currencies. In such a case, a country’s exchange rate regime is set by the foreign-exchange market (Adams, 2006). Exchange rate regimes have unique characteristics. These characteristics are accompanied by various principle issues.