The Effect of the Increase and Decrease of Inheritance Tax in the UK Essay

The Effect of the Increase and Decrease of Inheritance Tax in the UK Economy - Essay ExampleExchange rate is the look upon of two currencies relative to each other, like exchanging the US dollar for a certain rate of British pounds. This may be floating which means it changes from day to day or it may be pegged to another which means that it may have a certain amount of its cash held in another currency. The former is volatile while the latter is more stable since their setting is by the presidential enclosure fiat. Aguirre, A., Ferreira, A. & Notini, H., 2003 The rallying rates have been experiencing fluctuations in different regions of the world and this has had major impacts in these regions which have involved the private sector as well as the government and in some cases the government has had to play the role of the private sector so as to stabilise the rate. In this context the change rate snarf has been on the fore front and this has had adverse effect and implication s on the economic activities as well as the social aspect of the people in these regions. The heave if the unlike exchange tinges the foreign direct investment FDI. This is an international flow of capital that provides the multinational organisations and companies with control over foreign affiliates. The foreign exchange fucking influence both the total FDI and the allocation of this investment across different countries. The increase reduces the countries production costs and the wages relative to those of the foreign country. This means that the value of its currency depreciates relative to that of the other country. This means that the overall rate of return to foreigners is increased and this contemplates the overseas investment projects in a country. The increase in the foreign exchange may be sometimes anticipated and this will leads to higher costs of financing of the projects due to worry rate parity conditions. In these cases, multinationals opt to fund their overse as projects from the local kit as financing from the local become relatively expensive. This covers their monitoring costs and even the capital that keeps on increasing. The unpredictability of the exchange rates affects the production flexibility and also the risk aversion. There arises a problem where the producer produces the goods without the knowledge of the exchange rates as they affect the rate of production and the actual level of employment. Where there was risk aversion, the investors demand that they be paid compensation for the risks they incurred as the higher exchange rate raises the discrepancy of and lowers the certainty. In this case therefore, the high rates of exchange tend to raise the values of the investment projects and due to the high costs the profits are reduced. Goldberg and Kolstad, 1995 The Australian bank decided to leave the rate of cash unchanged, while the central bank highlighted on its ability to lower the benchmark of the nations interest rate so as to ease the inflation pressures. Fig 1 Graphical illustration of Australian Interest rates from January 2004 through January 2010 This rising exchange rate leads to the tightening of the monetary policy. This in effect raises the interest rates to higher levels which are visibly seen to rise faster in the short force than in the long run. The result of this is that the foreign investors hold foreign assets because of the increased rate of return on the national assets with the tightened monetary policy and they expect that the domestic value will fall in future. There arises foreign debt due to the high appreciation of the real exchange rate. These may make the local currency to reach parity against the foreign currency like it was for the euro against the dollar between Australia and US. Aron, J., Elbadawi, I.A. & Kahn, B., 1997 Identify the possible causes of this appreciation and analyse the extensive implications on the Australian parsimony which was saved by the collapsi ng economy of the Australian government and economy. The appreciation of the real exchange rate brings diverse effects which are extensive the short term aspect of