Essay on Winners and Losers of Open Trade: Factors Determining Exchange Rates

The economy opens for trade expanding its markets to an international level. Although it might be a good idea for an economy to decide on making its market free, some people pay the cost, and some find fortunes. Therefore, this paper will discuss the winners and losers of an open trade and also the factors determining exchange rates.

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Small scale dealers who face uncompetitive markets pay the ultimate cost in the sense that they are the ones making losses and this is because there would be an influx of limited goods that had caused little competition in the market (Christiano, Trabandt, & Walentin, 2011). The presence of the commodities slows the rates of sales; thus they will make losses. The exporters, on the other hand, will make fortunes from selling products to other countries. Prices in other countries might be favorable than the one determined by the government (Michel & Rycx, 2011). Fetching such high prices is a treasure hunt that reaps lucrative deals. Exporters and the people who get employed in exporting business are the winners when an economy opens for trade.

Exchanging currencies are vital for foreign traders and travelers. The pound has long-lived to be the strongest currency as the United Kingdom is a powerhouse of financial trade (Underhill, 2016). In the short run, the exchange rate of a country is based on the supply and demand rate of the country. Also, an in-depth survey of how the variation of the demand and supply occurs brings into light details of the principles determining exchange rates. They include the demand for goods, speculations in the currency demand, and the central banks (Kuznetsov & Sabel, 2014). In the long run, the purchasing power parity determines the exchange rate - also, the relative trade barriers, the difference in productivity, and differential preference for goods.

Conclusion

In conclusion, the world has all sorts of countries categories as per the level of their development. The economy of these countries also determines how strong their currencies are. It is important to understand the factors determining the exchange rates since it affects the lives of individuals in a unique way. Also the essential nature of having an open economy should intensify the analysis of the pros and cons.

References

Christiano, L. J., Trabandt, M., & Walentin, K. (2011). Introducing financial frictions andunemployment into a small open economy model. Journal of Economic Dynamicsand Control, 35(12), 1999-2041. Retrieved fromhttps://www.sciencedirect.com/science/article/pii/S0165188911001710

Kuznetsov, Y., & Sabel, C. (2014). New open economy industrial policy: making choiceswithout picking winners. Retrieved from https://www.oecd-ilibrary.org/science-and-technology/making-innovation-policy-work/new-open-economy-industrial-policy-making-choices-without-picking-winners_9789264185739-5-en

Michel, B., & Rycx, F. (2011). Does offshoring of materials and business services affectemployment? Evidence from a small open economy. Applied Economics, 44(2), 229-251. Retrieved fromhttps://www.tandfonline.com/doi/abs/10.1080/00036846.2010.503932?casa_token=ZqM5BoQIZsAAAAA:M6F4VaWxPcpjqf8ZacHXePXrfFDBwmOAnoka8R97uHfmfUNNFZAWzDZoUTwVh0Isgef5LqWlVF7c4

Underhill, G. (2016). Industrial crisis and the open economy: politics, global trade and thetextile industry in the advanced economies. Springer.