The International Implications of Competitive Monetary Expansion and Assignment

The International Implications of Competitive Monetary Expansion and Currency Devaluation - Assignment Example It is important for the Indian economy to stabilize its currency in the long run to remain attractive for foreign investments. This can be achieved by direct intervention of Central Bank in the Forex market. Other efforts to stabilize the currency include liberalization of the interest rates and limiting intra-day limit of foreign dealers. Another way to boost the economy is to improve trade balance. This can be done by raising subvention for small and medium term exporters to increase the level of exports. Use of hedging strategies on part of the importers and exporters could minimize losses arising from the exchange rate. Also in respect to the Indian market, it has been observed that the depreciation of rupee has not been passed on to consumers, as majority of the items like, cooking gas, kerosene and fertilizer, are subsidized. Hence, removal of subsidies will help the government to pass the costs to people in order to discourage imports of these items. The fiscal deficit of the government is likely to reduce if higher price of energy is passed onto consumers, thereby bringing down the prices for energy imports. Finally, the government can create favorable environment in the country for the purpose of attracting FDI. FDI has been identified as a credential source of funding for most emerging countries like, India and China. Therefore, proactive liberalization of FDI in the Indian economy will be helpful in attracting investors. Enhancing freer investment in sectors, such as, retail, can help to draw in fresh investments in the economy. 13 Tapering monetary policy adopted by many developed nations is putting pressure on the emerging countries. On December 2013, the Federal Reserve Bank of the U.S.A. announced that it would begin to lower bond purchases by $10 million on a monthly basis. Since announcement of this news, the emerging economies began to feel weight of the probable consequences of this action. Possible