Importance of Money in the Real World

1641 Words7 Pages
Money is an essential part of today's globalized world. Countries are becoming more interdependent than ever before, mainly arising from the need to trade with each other. So how do countries actually trade with each other, how are real trading decisions made, and are the effects any good for us? A brief overview of the global trading system shows a terrible amount of inefficiencies within the international trade process. To trade within the country lots of factors should be taken in account such as quotas, tariffs or exchange rates. The exchange market affects all sectors of economy. It is a spontaneous force which does not follow the basic rules of economics (supply and demand). Comparing values for world GDP and the value of FX market, it can be seen that while the world produced goods and services for $9 trillion, the foreign exchange market traded worth $40.9 trillion in 2004. Obviously, the current economic situation is vulnerable and further speculations might worsen the current state of recovery. The question of what an exchange rate is, and how much global trade would benefit in having a single global currency, will be analysed. In this essay I will try to argue in favor of a single world currency , and will try to prove inefficiencies that the absence of such a system brings. I will also try to describe alternatives that can partially fulfill the need for a single global currency. Trade, as described in many student textbooks often has a very theoretical point of view about foreign markets. However in practice most of the trading goes on with substantial influence of foreign exchange market. Any possible transactions such as purchasing goods or services will have to go through FX (Foreign Exchange) markets. Any fluctuations of currency exchange rates might affect the cost of exchange and this cost might be transferred to the customer as a price. All
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