MEP CASE ANALYSIS

PRESENTED BY Group 10

 Pratik Roul
 Pallavi Sharma
 Mrigang Shekhar Singh
 Rahul Jayant Jain
 Mohd. Khizir
 Review on Case Study
A Nation depreciating it’s currency to economic prosperity

• The economy of China, seen glorious development since mid 1990s in

its fares. Aided by development in sends out, China kept up
tremendous positive exchange offset with a large portion of its
significant exchange accomplices and huge forex holds.

• In spite of the fact that China stayed quiet on the issue, monetary
spectators thought that it would need to respect the pressing factor
eventually. They additionally said that revaluing the money probably
won't yield brings about the present moment.
 What is Pegging?

Controlling a country's exchange rate by tying it to the currency of

another country or steering an asset's price prior to option expiration is
known as pegging.
Aspects of Pegging

Positive Aspects  Negative Aspects

• Can achieve trade advantage.

• Helps in keeping exchange rate low
which is beneficial to exports. 
•  Long term inflation
• A significant amount of capital
reserves is generally required to
maintain a pegged exchange rate.
• Requires large amount of
reserves.
• Creates unwanted economic
side defects such as higher
inflation.
 Exchange Rate
The rate at which one currency can be exchanged for
another between countries or economic zones is known as
an exchange rate. It is useful in assessing trade and capital
flow dynamics because it is used to calculate the value of
different currencies in relation to one another.
EQUILIBRIUM
EXCHANGE RATE
• THE EXCHANGE RATE AT WHICH THE DEMAND FOR A
CURRENCY IN THE ECONOMY EQUALS THE SUPPLY OF
THAT CURRENCY. 
• DIFFERENT MONETARY STANDARDS DETERMINE THE EQUILIBRIUM
OR NORMAL RATE OF EXCHANGE IN DIFFERENT WAYS.
Equilibrium in the Foreign Exchange
Market
(Determination of Equilibrium
Dollar/Euro Exchange Rate)
 What is Crawling
Peg?

A crawling peg is a band of rates that a fixed-rate exchange

rate currency is allowed to fluctuate. It’s a coordinated buying
or selling of currency to keep the currency within range.
Crawling pegs help control currency moves, usually during
threats of devaluation. The purpose of crawling pegs is to
provide stability.
 Advantages and Disadvantages

Some countries adopt this exchange rate to avoid economic instability due to the fall in foreign exchange reserves as in the fixed
exchange rate system.
At the same time, it also minimizes exchange rate fluctuations, because it directs the exchange rate to remain within the band.
Low fluctuation promotes overall economic stability.

Critics consider this system, not the ideal.

Similar to fixed exchange rates, significant currency flows make central bank intervention sometimes less credible.
The flow might force the central bank to intervene, which leads to a substantial cost (the erosion of foreign exchange reserves). 
That situation ever happened in Thailand in 1997.
Speculators’ attacks forced the country’s monetary authority to ran out of reserves to maintain its currency .