Reference no: EM13208530

Discuss the following topic: "How can persistently weak currencies be stabilized?"Many countries suffer from chronical economic problems, such as high inflation, high unemployment, and large trade and budget deficits. As a result currencies of these nations have been depreciating against stronger currencies, such as dollar, euro, and yen. Governments of these countries virtually have tried everything to stabilize their currencies. Some have succeeded but many have failed.

Instructions:

1- To read the point and counter-point of this argument and express your own opinion on this topic :

Point: Yes

The currencies of some Latin American countries depreciate against the U.S. dollar on a consistent basis. The governments of these countries need to attract more capital flows by raising interest rates and making their currencies more attractive. They also need to insure bank deposits so that foreign investors who invest in large bank deposits do not need to worry about default risk. In addition they could impose capital restrictions on local investors to prevent capital outflows.

Counter-point: No

Some Latin American countries have had high inflation, which encourages local firms and consumers to purchase products from the United States instead. Thus, these countries could relieve the downward pressure on their local currencies by reducing inflation. To reduce inflation, a country may have to reduce economic growth temporarily. These countries should not raise their interest rates in order to attract foreign investment, because they will still not attract funds if investors fear that there will be large capital outflows upon the first threat of continued depreciation

2- Two paragraph.

3- While in the discussion, read the point and counter-point which I have provided on this topic, then click on the forum in which you'd like to comment.