Dollar pegging and curreny basket Essay Example | Topics and Well Written Essays - 3500 words

Dollar pegging and curreny basket - Essay Example As the oil producing countries are getting more capital due to rising oil prices, people have more spending power and the relative commodity prices increase in the domestic economy. Table 1 shows the inflation rates in gulf countries over three different periods: 1980-81 (high inflation), 1986-2003 (low but volatile inflation) and 2006-07 ( current inflation situation). As chart 1 and Table 1 show falling dollar contributes to high oil prices that in turn lead to high inflation. On the other hand when the state of dollar is normal the oil prices remain average and hence the result is low inflation (Garriga and Armesto, â€Å"A Falling Dollar Raises Inflation in the Gulf†). After de-pegging from dollar, new exchange rate was governed by the basket of currencies that helped to stabilize the effect of depreciating dollar on the exchange rate of Kuwaiti Dinar in the world market. Due to this basket of currencies which included a good proportion of Euro allowed checking rising import rates due to depreciation of dollar against Euro. This further helped in controlling inflation which was rising due to increase in imports from European and exports to Asian countries. â€Å"Since 1980 the Bahraini dinar and the Qatar riyal have been pegged to US dollar at the rate of 0.37 per $ and 3.64 per $, respectively. Likewise, since the 1980s the Saudi riyal (1986) and UAE dirham (1981) are fixed at a rate of 3.75 per $ and 3.67 per $, respectively† (Hebous â€Å"On the Monetary Union of the Gulf States†). The exchange rate of a currency is determined by the â€Å"purchasing power parity†. For eg. If 10 gms of 24 carat gold can be bought with 1 USD and same amount of gold can be purchased with 4 Qatar riyal then 1$ equals to 4 Qatar riyal. This is how the exchange rate of every currency is determined in the world market (Saville â€Å"How are currency exchange rates determined†). â€Å"The value of a currency is usually determined by the demand for and supply of that currency.† For

Case study discussion Essay Example | Topics and Well Written Essays - 2750 words

Case study discussion - Essay Example In this regard, the assets, interests, and rights of the project are basically held as the secondary security or act as the collateral. Therefore, in any case the forecasted cash flow from the project does not sustain the project, there is high risk exposure to debt risks though the failure of the projects may be attributed to many factors like the interest rates, business risks, economic situation like inflation and the type of the shareholders (Gatti, 2013). In the case of Autopistas del Centro, the financial recession hit the project quite since most of the projected cash flow had been forecasted prior to the great financial crisis of 2008 (Lubian, 2015). Therefore, the only option it to sell the project to new owners since the shareholders are reluctant to go into their pockets and revive the project once. Therefore, it is imperative to identify some of the factors that must be considered when pricing the project so as to make sure both the buyers and sellers are satisfied. Besides, the head of the projects is deeply concerned about the best approach that can be used to make sure that the shareholders are satisfied with the handing over of the project to the new owners. Inflation is one of the critical issues that must be looked into when pricing a project to the new owners. The implication is that inflation has the potential to increase the original estimates of the construction costs (Esty, 2014). Usually, the inflation rates are put into consideration when the project is at the design stage but future changes in the inflation rates may affect the original estimated construction costs and this will have a huge effect on the final pricing of the project (Gatti, 2013). Therefore, when pricing the project, it would be important to look at the inflation rates in Spain, as well as Europe in general. In 2009, the CFO of AC, Martinez saw the need to revise the status of the project finance under different circumstances under which the