Extended Essay Economics

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IB Extended Essay - Economics

Word Count: About 3,690

Abstract

Economists have debated the advantages and disadvantages of different exchange rate regimes. An exchange rate regime is how a country chooses to manage the value of its currency with respect to other countries. In the world today, most countries choose to employ a floating exchange rate. Some of the key currencies in the world today such as the dollar, the British pound and the Euro are all floating currencies. In a floating exchange rate, the value of a country's currency fluctuates as demand and supply for said currency changes.

Venezuela is among the few countries that employs a fixed exchange rate. The Venezuelan Bolivar is pegged to the US dollar at 2.15 Bs (Bolivares) to 1 $US. This investigation will look at the fixed exchange rate policy in Venezuela and it's affect on the functionality of a firm. The firms that will be analyzed are Manpa, a publically-owned Venezuelan paper firm, and a branch of the Indian pharmaceutical company, Dr. Reddy's, operating in Venezuela.

I. Introduction

It's often been debated which type of exchange rate is better suited for a country's