Forex The Role of the Central Bank (DOC)

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                <p><img src="http://forexconqueror.com/wp-
content/uploads/forex-trades.jpg" border="0" alt="central banks"
width="150" height="150" align="left">The Role of the cental bank for
Business,Vacation, Migration, Education, Job, and trade all these
scenarios involves the use and transfer of foreign exchange in some or
other way. <a rel="nofollow"
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transactions form a significant component of millions of daily financial
transaction executed by banks. Foreign trade of a country is believed to
be a major contributor to its economic growth. Through it, a country is
able to acquire additional capital resources for supplementing its own
savings with foreign trade.</p>
<p>Custodian of foreign exchange reserves Central bank of a country is
also the custodian of its official foreign exchange reserves. This
arrangement helps the authorities in managing and coordinating the
monetary matters of the country more effectively. This is because there
is a direct association between foreign exchange reserves and quantity of
money in the market. The foreign exchange reserves are influenced by
international capital movements, international trade credits and so on.
Because of the interaction between the domestic <a rel="nofollow"
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title="Forex Trading – Getting Started">money</a> supply, price level
and exchange reserves, the central bank frequently faces several
contradictory tendencies which have to be reconciled. Management
regulation of exchange rate A related function which is assigned to the
central bank is the Management and regulation and stabilization of the
exchange rate. This task is facilitated when the central bank is also the
custodian of official foreign exchange reserves.</p>
<p>The need for a stable exchange rate is more in the case of a paper
standard than under a metallic standard. In this context, we should
specifically note two things • The justification for having a stable
exchange rate and avoiding violent and wide fluctuations in it. • The
need to assign this task to an expert and competent agency. As regards
expertise and competence, central bank of the country is the best agency
to which the task of regulating and stabilizing exchange rate should be
assigned. The central bank happens to be the apex institution of the
entire financial system of the country. It is in possession of maximum
data and has the expertise of estimating the financial trends and the
type of corrective measures needed. Moreover, it possesses several
regulatory powers over the financial system. It can contemplate and take
the complementary measures needed for ensuring the success of the steps
taken in the area of exchange rate. A stable exchange rate is of great
help in promoting external trade and orderly capital flows.</p>
<p>The volatility of exchange rate tends to increase if there is complete
capital convertibility. If the central bank is given the authority to
regulate the use of <a rel="nofollow"
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Key Trading Concepts">foreign exchange</a>, the task of stabilizing
exchange rate becomes easier for a country.</p>                <!--
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posted:11/17/2011
language:English
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