Adopting Single Currency in ASEAN Region: Analysis

Adopting genius funds in ASEAN Region AnalysisQuestion 11.1 IntroductionEuro () up-to-dateness was created in 1957 and the integrity gold provides many benefits to the euro land. For an example, Euro currentness eliminated exchange salute and fluctuation lucks. It get tos stability of stinting to the euro character, so it allows government to chip in come apart long term planning for future. In addition, scotch stability overly helps to disgrace un trus devilrthyty and increase investment, so it gives advantages to the logical argumentes as well. As line of reasoninges slay advantages from economical stability, it overly give benefits to the citizen as it provides lots job and stop quality jobs. Furthermore, with a adept currency, it is less(prenominal) tryy and more salute-effective when doing business within the euro reach as there is unrivaled banging integrated market. Besides that, it crusades cross-border trade and all mixed bag of investments a s the set squeeze out be comp atomic number 18 easily when using the same currency. (N/A, 2014) Thus, the sure-fire of work throughing a wholeness currency of euro () arise the interest to the topic of whether separate component part groundwork successfully training greens approaches. Especially for ASEAN region as ASEAN is one of the region that economic acceleration is much positive. However, there is always a question whether ASEAN can successfully put oned a mutual currency, as euro currency in European Union. We wee to look at the challenges of adopting a single currency for ASEAN economic in order to trace whether ASEAN region is suit commensurate to furbish up much(prenominal)(prenominal) approaches.Content1.2.1 Intra-Regional Trade first-class honours degree of all, substantial intra-regional trade is one of the key challenges to adopt single currency for Asia. Big volume of inter-transaction within Asia give enhance the currency of countries in Asia. Howe ver, countries in Asia done more trading with countries where extracurricular the region, approximately 75% more than countries in Asia. Therefore, Asia countries be worried for their currencies stability against international currencies if they adopt a single currency. Asia countries can import more goods and services from countries outside the region than intra-regional countries except if their total exports is greater than total imports. (Lee, 2009) To sum up, Asean region stand to increase their transaction within their regional state in front action a single currency in order to stimulate Asean currency.1.2.2 Economic DevelopmentBesides that, Asean countries fall in diametric economic development, their GDPs and per capita income levels ar different to one an just about new(prenominal) countries. For instance, per capita income of capital of Singapore is approximately 350 quantify more than poor rustic like Myanmars. In addition, countries in the region ara l ike China, India and Indonesia are part of the largest countries in the world, yet they show whopping income differentials. It is difficult to bear a similar monetary management with much(prenominal) a big income differentials. (Lee, 2009)1.2.3 Monetary System Market IntegrationMoreover, monetary integration is another big challenge to adopt single currency for Asean region. Monetary integration refer to substitution banks and governments of the region countries would have less keep back over monetary policies and fiscal policies. However, more or less countries are scarcely not attain for such integration as monetary insurance polity is an important tool to stimulate rescue. For instance, countries are not able to habituate tools such as interest evaluate to address cyclical occupys. (Lee, 2009) For nurture explanation, all country have different economic objectives, for an example, some countries in the region are torture recession and some countries are wo(e) an largeness. Thus, intricacyary policies are needed for some countries to address recession, and contractionary policies are needed for some countries to address pomposity, notwithstanding ASEAN central bank can only implement one monetary policy at one time. Therefore, there is a huge problem among the union. In addition, countries like Japan and Korea such unquestionable country have maintain tight restrictions on labor mobility. However, Governments of region countries have to implement policies which allow for greater mobility for labor and capital crosswise within the region borders in order to manage a reciprocal currency. However, it is hard to transfers large-scale of resource crossways national borders as at the union level, governments will have less centralized budget. In addition, Asean is appetency to set limits on the fiscal deficits for each country due to make from European. Hence, country can only respond to country specific shocks by using limited fiscal policies. (Madhur, 2002)1.2.4 Financial SystemOther than that, a steady fiscal arrangings and markets are required to manage a common currency. It required a strong institutional support as well, plainly Asean soon does not have such institutions to deal with those threat to the pecuniary sector. (Lee, 2009) Unlike Europe, Europe have established a wide crop of institutions such as European Commission, European Council and the European Central lodge to control regional suspend. Somehow, it is a big challenge to Asean to develop such infrastructure. (Madhur, 2002)1.2.5 Macroeconomic DisturbanceFurthermore, the comprise of adopting a single currency is house servant central bank have to give up the power to control monetary policy and the currency have to control by ASEAN central bank. However, every countries have different rates of lump as economic conditions are different. Therefore, it is hard for ASEAN central bank to control all the ASEAN area by implementing a policy and problems may occur if one or two countries failed to adjust interest rates to meet the demands. For an example, the lesson from European debt crisis, European Union is currently discussing whether Greece should return to its own monetary policy that regulate by Greek Central Bank and leave the Euro zone. Meanwhile, there are same situation in the ASEAN as ASEAN nations have two different economic power groups. For instance, the first groups are those nations which are advanced economies such as Brunei, Malaysia, Indonesia, Thailand, Singapore and Philippines. The second groups are those nations which are least spunkyly-developed such as Laos, Vietnam, Myanmar and Cambodia. This two group have big distinction in terms of income per capital. For an example, income per capital of Singapore have approximately 350 times more than Myanmar. In addition, Myanmar have heights swelling rates and Laos have steep unemployment rates. Therefore, it is difficult to address the problems w ith a same monetary policy as the differentials of inflation rate and unemployment rate between one country and another. (Sidjaja, 2011)Impact of single currency to Asean economy1.3.1 Positive implicationsOn the other hand, implement a single currency for Asean economic community would have bring positive effect to the Asean region. Eliminate transaction costs is one of the benefits of implementing a common currency. With a single currency, countries or businesses can further transaction cost when trading within the region as the cost of exchanging currency is no longer needed. For instance, Malaysia citizens can travel or do investment in region area like Singapore, Thailand, Japan and others by using Asean currency. Transaction costs are eliminated as exchange for other currencies are not needed when trading within region area. Therefore, it helps to promote trade within regional area as it is easier to trade by using a single currency. In addition, single currency also allow bus inesses to have better planning as it eliminated the fluctuation cost. Otherwise, businesses could induce extravagantly cost by fluctuation cost. For an example, a troupe in Malaysia decide to sign a shipping service from federation in Singapore with a five year deal which cost 10,000 SGD per month. At that time, the exchange rate was 1.00 SGD to 2.00 MYR, so the company in Malaysia have to lucre 20,000 MYR per month. However, SGD have appreciated against MYR as the exchange rate was 1.00 SGD to 2.7 MYR, which result company in Malaysia have to break 27,000 MYR because of the fluctuation cost. Hence, investment would increases with using single currency as sozzleds can have a better business planning. Besides that, single currency makes it easier to compare cost of products and services across countries in regional area, which encourage more trading within regional area. As a result, increases in competition, and economic efficiency improved. (Sanno, 2010)1.3.2 Cost of adopti ng Single CurrencyThe biggest cost of implementing a common currency is countries have to give up their national sovereignty. They are no longer able to implement own monetary policy in their country. This could result some problems to trusted countries in the region as monetary policy only can implemented once at one time. As the example of European Union, European central bank cannot address the problems of Greece which back uping of high inflation because if European central bank implement a contractionary policy specialize to address high inflation in Greece, it would lead another shun effect to other countries in Europe like Spain where the country currently suffer from recession and having high unemployment rate.1.4 ConclusionTo sum up, adopting a single currency have pros and cons. A single currency would promotes economic outgrowth of Asean region as transaction costs and fluctuation costs are eliminated which increases trade and investment within the region and attract investors from outside the region. However, countries have to give up for their national sovereignty as monetary policies will be implemented by Asean Central Bank. Despite that, there are several challenges that Asean region have to deal with in order to implement a successful single currency such as intra-regional trade, economic development, monetary systems market integration, financial system and macroeconomic choker. From the view of those challenges, Asean region is just not ready yet to implement a single currency as Asean intra-regional trade is not strong enough. In addition, economic development in the region have too big differentials, for instance, Singapore compare to Myanmar. Besides that, some countries like Myanmar and Laos are not ready to give up their national sovereignty yet because Myanmar is currently suffering high inflation rates and Laos is suffering high unemployment rates. Moreover, Asean liquid need some time to develop a strong financial system to m eet the infrastructure like in European Union. Last but not least, Asean is also not ready to deal with macroeconomic disturbance yet as some countries are having high inflation rates, whereas some countries are having high unemployment rates. Thus, it will not be a wised inspire to adopt a single currency for Asean as member countries in Asean still have a lot in uncommon. As the lessons from Euro crisis, issues in a weak economy country could affect the strong performing country. (Penh, 2012) Asean should adopt a single currency in no rush, other similar consequences would occurred again in Asean region.Question 22.1 IntroductionThe threesome key macroeconomic factors are inflation, unemployment, and forex. Policymakers always implement many kind of policies to deal with those macroeconomic factors. These three key macroeconomics factors could lead to further ball-shaped financial crisis if policymakers do not implemented proper policies to address. For instance, when economy reached the peak, high inflation may hit on the economy. Therefore, policymakers have to implement contractionary policy in order to deal with high inflation. On the other hand, when economy is suffering from recession, high unemployment rate would occur. So that, policymakers have to implement expansionary policy to address high unemployment rate. Moreover, when economy comes to globalization, fluctuation of exchange rates index be too high. Hence, policymakers have to used certain currency reserve to stabilize the exchange rates. However, policymakers sometime just did not see through illusion of business cycle, as a result lead to financial crisis. Stock markets are crucial to financial crisis as when melodic line markets collapse, countries could suffer from financial crisis. Macroeconomic factors such as inflation, unemployment, and forex would affect the firm value, birth returns and risk assessment.Content2.2.1 InflationInflation hatchs that overall toll levels increase sustainably. Inflation does affect firms performance as inflation acquire costs on firms. With the inflation, firms have to spend more cash on raw materials. For an example, line of credit Asia have to pay more money for the honey oil fuel if the price of jet fuel goes up. In addition, employee demand more wages as inflation lower start their standard of living. rave fuel and wages are two major costs for Air Asia. Increases in price of jet fuel and wages also mean that cost of Air Asia increased. Therefore, Air Asia would increase price of airline tickets as well to sustain their profitability. In this situation, cost of the services increased and price of the services also increased. However, demand for airline tickets decrease due to the guess of demand, as price goes up, demand comes down. Hence, revenue of Air Asia decreases. In addition, the risk goes up because revenue of Air Asia susceptibility not able to abide to pay loans and costs. As risk goes up, default risk goes up as well. Besides that, provision of doubtful debt increases because debtors talent also not able to settle the debt as revenue of debtors are also decreases. As the result, grant price comes down. As the grant price comes down, firm value also decreases. Moreover, inflation could also affect stock returns. Stock returns are the dividend paying(a) by issuer to the stockholders. Most probably rise of inflation would reduce the stock returns as drop in revenue of company. Company can endure to pay same amount of dividends while suffering inflation only if company is able to ensure their earnings are keeping yard with the growth rate of inflation. However, it is unlikely as around of the revenue of companies would decreased. (n/a, 2012) Furthermore, inflation also affect the risk assessment of a company as inflation brings different degree of risks. initiative of all, when the economy is having high inflation rates, central bank would implemented contractionary policy to address inflation. Therefore, quantity of money supply in economy would decreases and thus, low buying power in economy. Hence, companies should focus on market in abroad rather than home(prenominal) country. For example, Air Asia should offer more of their dodging services to other strong purchasing power countries like China, Singapore, Korea and others. As economy is suffering from high inflation, revenue of companies are judge to reduce. Therefore, company should have cut down their cost. For an example, Air Asia would have to cut numbers of staff and closed certain area in airport. In addition, companies should not only focus on offering a single product or service in order to diversify the risk. For instance, Air Asia not only offer flight services but also selling tax free chocolate, alcohol, and others product. Therefore, when the inflation hit on the input price of jet fuel, Air Asia is still able to gain some revenue. Share price of companies are expected to drop when hit by inflation. Hence, the possibility of shareholders sell all of his shares are high, so companies should have prepared funds to buy back those share to maintain the share price as much as practicable otherwise the company would panic.2.2.2 UnemploymentUnemployment refers to people who currently do not have a job, but volition to work. Unemployment bring many impacts on firms. First of all, high unemployment mean there is less disposal income in economy. concourse dont get income when they do not have a job. Hence, the spending power in the economy is weak. On the other hand, cost of wages would decrease as there are too much surplus of labor supply in the economy when there is high unemployment. Reason decline of wages is because of the competition for a job. People is willing to accept lower wages to get a job. Decreases in cost of wages is one of the element to get better profits, but in high unemployment situation, revenue and profits of company would fall as the purchasi ng power is low. Therefore the risk of company increases as company might not able to settle down the liability because revenue of company is not enough to cover. Hence, default risk of company increases as rises of risk of company. In addition, provision of doubtful debt might increases as other companies might also face similar difficulties which they cant afford to pay their debt. At the end, the share price of company would falls because of the poor business performance of company. Share price of company falls lead to firm value falls. Besides that, unemployment also affect stock returns, when suffering from depression, most of the companies would not pay a single sen to their shareholders as they need to insert up their capital to deal with uncertainty or set to make expansion. So that, stock returns are zero at this situation. Other than that, unemployment also affect the risk assessment of a country. High unemployment have some specific risks. First, central bank would impl emented expansionary policy to deal with high unemployment. At the same time, government is eager to address unemployment problem as soon as possible because taxes receive by government falls and national economic is weak. At this stage, central bank may reduce the interest rates which intend to lend out money to firms for expansion and thus, deploy labor. In addition, wages of labor is cheap. Therefore, the risk to expand the businesses of firms are low as firms can taste cheap interest rates and cheap labor wages. Moreover, it is risky to offer normal or opulence goods and services since most of the people cant afford to enjoy such goods and services. Instead, firms should offer more inferior goods which most of people can afford. Besides that, firms should hire security guards in the working area in order to eliminate risk of crime. Such social problems happened frequently, especially when depression. For example, every Rolex retail shop have deploy at least two security guards to keep their shop safe and avoid robbery. (Riley, 2009)