Exchange Rates and Interest Rates in Pakistan Analysis

Exchange Rates and Interest Rates in Pakistan Analysis Abstract This paper endeavors the relationship and the positive effect between exchange rates and interest rates in Pakistan by utilizing the foreign exchange market and current scenario of increasing interest rates because of increasing exchange rates to represent the economic position of Pakistan. The data by the researcher is all on daily basis for the above variables from the period of September 2001 to May 2008 for exchange rates, while for interest rates (6 month KIBOR) from the period of September 2001 to May 2008. The researcher implement regression model to test the effect of exchange rates progression on interest rates. So in this result, there is the issue of auto correlation exists and it shows the serial correlation between these variables. The issue should be resolved by taking time and KIBOR lag values as the dumm dependent variables. The study concludes on this way that there is the negative relationship between exchange rates and interest rates (KIBOR) in Pakistan and there i s the impact of time and KIBOR on KIBOR.. It identifies that when exchange rates increases, there is decreasing in interest rates (KIBOR). This results and relationship is consistent as predicted by Meese and Rogoff (1988). INTRODUCTION Every country has its own financial markets and it is the back bone of a countrys economy. The financial markets is divided in parts like foreign exchange market, stock market, money market, bond market etc. In this study, the researcher is focuses on the foreign exchange market, which is commonly known as Forex. It is the largest and most prolific part of financial market and defining the balancing of countrys economy, because every particular day, there are approximately one trillion amount of foreign exchange takes place in the countries around the world. The actual mechanism of the foreign exchange, that it is work as the main driving force for an any countys economy in the world. Therefore, any country in the world should challenge their currency in the global economic markets. In the exchange markets for all the countries, home country currencies trade with other foreign country currencies. The foreign exchange market system is needed for every developed and under developed cou ntry; this system known as currency in exchange determination. For the determination of the value of a currencys exchange rate, there are two main types of system is used, one is floating exchange rates system and the other is fixed exchange rates system. The intervention of government officials authorities in the foreign exchange market is to influence the exchange rate fluctuation as a worldwide phenomenon. The authorities intervene maintaining the objective to orderly market conditions that ultimately help to achieve the overall macroeconomic goals. However, the exchange rate has playing an important role in terms of the flexibility in macroeconomic framework to deal with changes in the external terms of trade, but the monetary policy also aims the national objectives of economic diversification and to support export competitiveness. The ineffective monetary policy under fixed exchange rates as compared to flexible exchange rates, but fiscal policy under both fixed and flexible exchange rates remains weaker of achieving the level of output. (R.A. Mundell, 1968). The level of currency risk changes, it has no negligible impact on the rates of change of exchange rates and on relatives rates of interest between currencies. (Clas Whilborg, 1982). The risk premium of the currency is the important factor relative to floating exchange rate system, but movements in the exchange rate are dominated by the non speculative activity and it has the adverse effect on world economy. (John bilson, 1985). The true statement that in many cases the sign of the estimated exchange rate-interest rate differential relationship is consistent with the possible predominance of financial market disturbance (R. Meese K. Rogoff, 1988). The consequences changes in the nominal interest rate reflect changes in the tightness of monetary policy. T he higher the interest rate in the country attracts the capital inflow, which causes the domestic currency appreciates, so this gets the relationship could be negative between the exchange rate and nominal interest rate differentials. (J.A. Frankel, 1979). The assets are dominated and exchange risks interest reflects the interest rate parity when different currencies affect political risk and thats why assets are issued in different currencies. Thus the interest differentials to the political risk of future capital control must be distinguished due to the effective tax that controls the place in interest earnings. (M.P. Dooley P. Isard, 1980). The concept of political risk is that the probability authority of the state will be interposed between investors in one country and investment opportunities in other countries that is the probability that controls the imposed on capital flows. (R.Z. Aliber, 1973). If price levels and exchange rate are significantly volatile and cannot be cos tly hedged, are adversely affected in the real value of the domestic currency. There is some evidence that exchange rate fluctuations are a priced factor in cross sections of stock return converted into a common currency. (W. Bailey P. Chung, 1995). In the perfect mobility the exchange rate movements and an adjustment of goods market is relative to asset market and consistent expectations. The extends that output responds to a monetary expansion in the short run, this acts as an effect on exchange depreciation which lead to an increase in interest rates. (Rudiger Dornbusch, 1976). The foreign exchange gain or loss is made in the course of covering; consider being capital assets, so this gain or loss treated on capital account. This shows the highly sensitive interest dynamics with exchange rates. (M.D. Levi, 1977). The variability of industrial production output will be higher in the regime of fixed exchange rates instead of regime of flexible exchange rates. (Flood Hodrick, 1986) . The effect of consumption goods purchases by the government is not the private utility, but per capita real government expenditure are the composite of individual consumption of goods. So notice that the demand of money its depends on consumption of goods rather than income and that is the important distinction of closed economies.(Obstfeld Rogoff, 1995). The fixed and floating exchange rates depend on higher welfare yield and on the nature of sticky prices, so the risk would be shared and there are some opportunities to aware. The evidence, which should give opportunities about price setting and risk sharing are not refined and not to make the definite conclusions for the optimal regime of the exchange rate of that country. There are three types of ways which gives stickiness in prices, the prices which would set by the firms in their own currencies, the firms would set the prices for consumers currencies, or firms would set the prices in the currencies of producers. (Charles En gel, 2001). When the exchange rates changes, it may cause to appear the changes in relative prices and make to generate additional uncertainty for equilibrium in markets. However, there is also defining that the changes in terms of trade would play the larger role of changes in the exchange rates which affect the variability of exchange rates. (A.C. Stockman, 1980). This study explores to investigate the determinants of exchange rates in developing country such as Pakistan. The framework of this study is concern to be conceptual and theoretical and is to set up the ground of unidirectional causality from exchange rates to economy. In principal, it determines the exchange rates relationship with interest rates so it will spurs the determinants in Pakistan with related to the economy. This view implies that the choice of an exchange rates regime be a relatively simple, if countries were faced to intervene regularly in the foreign exchange market to stabilize, therefore the monetary authorities intervene with the objective of maintaining orderly market conditions, which ultimately help to achieve the overall macroeconomic goals. The discretionary nature of the existing monetary policy in Pakistan is inflation, and it is targeting to hit on the Pakistani economy by focusing attention on the monetary policy. So the government of Pakistan is to make t heir monetary policy more transparent for achieving their explicit goal, and decreasing the inflation. Therefore, it is increasing the publics understanding of the central banks strategy to deliver the target, so the State Bank of Pakistan will help to provide an anchor for inflation expectations in the economy. The State Bank of Pakistan (SBP) has accorded a high priority to achieving a low rate of inflation, and the monetary policy also aims to support the objectives of the national country of Pakistan to meet their diversified economy and competitiveness in the export from other countries of the world. This study will also helpful to the SBP to developed their awareness of the relationship of exchange rates with KIBOR, so SBP may observed the controversy of their ups and downs fluctuations so it may controlled significantly. The bank treasury department should get the help because, they have continuously meet the exchange rates and make transactions of the countrys currency with others country currencies, so it should make them identify that if exchange rates increases or decreases it should not make effect on interest rates but their should be some inverse effect in nature. This effect should create controversy in the country economy so the central bank should make some authorized decisi on to controlled the exchange rates and interest rates The thesis is structures as follows. Chapter II provides literature review. Chapter III defines the outline of variables, their sample size, data sources and its formatting and the model. Chapter IV explains our findings and results. Finally Chapter V reports conclusion Chapter II Literature Review: This study relates to examine the relationship and effect between exchange rates with interest rates. Numbers of studies have done by the researchers, Robert A. Mundell, (1961), Bela Balassa (1964), Robert Z. Aliber, (1973), Rudiger Dornbusch, (1976), Richard A. Meese Kenneth Rogoff (1982), H.M.S Gerlach (1988), to investigate the determinants of exchange rates have applied in the world exchange rates market and help for different countries in their market development and economic growth. Researchers attempted to exemplify whether, how and to what extent the determinants of exchange rates market can contribute to the process of economic growth. Purchasing Power Parity Theory: The purchasing power parity theory doctrine means different things to different people. It has two versions of this theory that can be called the absolute and the relative interpretation. The first version of purchasing power theory calculated as a ratio of consumer goods prices for any country would tend to the equilibrium rates of exchange. In the second version of relative interpretation the rate of exchange rate would be determined between two countries and quoted with general levels of prices of two countries. It amend the international trade theory which would be the part of PPP, in which introducing the non-traded goods (services), but the advantage is greater in regards of traded goods than non-traded goods, because of the assumptions of marginal rates of transformation. The relationship between purchasing power parity and exchange rates provides the international comparison of national incomes and living standards (Bela Balassa, 1964). (Lawrence H. Officer, 1976) is the rese archer which gave another review of this purchasing power parity theory. It has define two applications in economics, the first application use of the conversion factor to transfer the data in one national way to another. The use of PPP is mainly the body of (index number theory) and applications of GDP that have improved over the years and path breaking studies in the area continue to appear. The second application of PPP has not the widespread acceptance, which has remained the unsophisticated applications. A.C. Stockman, (1980), develops the model of determination of exchange rates and prices of goods. The changes in prices of goods due to supply and demand would affect the changes in exchange rates with deviations of purchasing power parity. The changes in exchange rates have failed to resemble the changes in prices of goods, because exchange rates more volatile than prices levels and inflation rates. The research proposes the equilibrium of exchange rates behavior and different international goods that would have been traded. This relationship cannot be exploited by the government, because the greater the changes in terms of trade the larger the changes in exchange rates variability. The deviations from PPP persist that variation of exchange rates more than ratios of price indexes. The results found the two interpretation of the relationship between exchange rates and terms of trade. In the first, the causes that affect the changes in exchange rates would also affect the change in te rms of trade because prices of goods do not adjust to clear the markets. This interpretation would also found in the research of Dornbusch (1976), and Isard (1977), they formally differentiates the system with respect to exchange rates and allow prices to change but not the changing in asset stocks. The another interpretation presented the elasticity approach of the foreign exchange market and the relation between the trade and exchange rates. Real supply and demand shocks affect prices and the derived demand of exchange rates. The affect of such a shift has the advantage to raise the value of currency in terms of foreign currencies relative PPP. These changes in demand for foreign exchange would result the supply and demand shocks and that should affect the equilibrium of exchange rates. In second interpretation the expected rate of change of exchange rates revealed on the forward foreign exchange market. This should be related the anticipated change in the terms of trade and the i nflation differentials. A persuasive argument about the level of exchange rates is only associated with not causes of the relative prices changes. Clas Wihlborg, (1982), examined the relation of interest rates, exchange rate and currency risks in this research. It identifies the test which empirically impact of currency on interest rates and exchange rates. In this research there are three different ways in which the importance of currency risks for interest rate and exchange rate determination. First different risk characteristics of assets denominated in different currencies. Second changes in the level of risks that affect the elastic ties of substitutes among different assets and the monetary policy. Third changes in the level of risks on alternative assets which have a direct impact on rates of return. This research used the three specifications of the dependent variable to test the theory, firstly the rates of return is adjusted for the expected rate of changes in the exchange rates, second difference between nominal rates of interest and third rate of change of deviation from the exchange rate. The results presented here that substantiate the changes in the level of currency risk have a non-negligible impact on the rates of change of exchange rates and on relatives rates of interest between currencies. The risks explain the small share of variation in these variables. Another results indicate that the nominal interest rate seem to adjust in fiscal policies and savings behavior but not affect real rates of interest. But changes in relative risks level would affect relative rates on interest these changes still be important for the substitutability between assets of different currency denominations. Richard Meese Kenneth Rogoff, (1983), analysis the out of sample forecasting accuracy on various models. It estimated the horizons of the dollar with different country currencies, like Dutch mark, Japanese yen, and Britain pound that traded to weight the dollar exchange rates. Its also studied the flexible exchange rates with the monetary models of sticky price, so the model of sticky price, which incorporates the current account. The first model is structural models in which it requires to generate the forecasts of exchange rates and explanatory variables. It contains the explanatory power, but its predicted badly because the explanatory variables are difficult to predict. The second is the univariate times series model in which identify a variety of prefiltering techniques involve differencing, de-seasonalizing and removing time trends. The relative performance of these techniques is of interest in itself. The third model use is the random walk model; it should also link with this univariate time series model. It uses as the predictor of the current spot rate with the entire future spot rate, and it requires no estimation. In this research the performance of estimated univariate time series models or candidate structural model is so worse. From a methodological stand point the view that the out of sample model fit is an important criterion when evaluating exchange rate, but the estimation of out of sample is failure with time series models, that are well approximated the major country exchange rates. John Bilson, (1985), gives the empirical findings about macro economic and flexible exchange rate of the U.S dollar related to PPP theory. From the perspective of this research in which sluggish price adjustment in the commodity markets resulted in increased variability in exchange rates. For the demonstration of result it is important because the instability of floating exchange rate could be due to the inherent differences between commodity and foreign exchange markets. The determination of the expected future rate is impossible, because it is more difficult to reject the forward parity condition. The major part of the forward parity is the variation in the premium is due to the forecast. The object of this research is to determine that if the forward parity failed is the cause of instability in the same way that the failure of purchasing power parity. The findings develop that currency risk premium is the important factor relative to floating rate system, and movement in the excha nge rate are dominated by the non speculative activity and it has the adverse effect on world economy. Roger D. Huang, (1987), evaluate that the expected change in the exchange rate of two countries equals the expected differentials in their inflation rats over the same holding period. It makes the empirical evidence link with PPP theory and obtained that the changes in expected nominal exchange rate is appear to deviate inflation rate systematically. It relates the PPP based on the constraint that, in efficient market the net return to speculators engaging in speculation on goods in the foreign country. The purpose of this research is to know the equality restriction between expected nominal exchange rate and expected inflation rate differentials. The investigation should have the result that the evidence is inconsistent with the current floating exchange rates over the major industrialized countries. Since the test perform meaningful in conjunction with market efficiency and simply indicate the failure expectations. John Doukas Abdul Rahman, (1987), conducted the unit root test for the presence of evidence from the foreign exchange futures market, and gets the representation of foreign exchange currency future prices. The research describes the procedure from the foreign exchange future markets on five different currencies with varying maturity. It was found that presence in the series may cause the OLS estimates and its true value leading to errors, for small sample sizes the model has smaller forecast error. The process generate the log of currencies future rates by random walk, and it is consistent with other model of asset price determination that they imply the mean and dispersion of returns that don not change over short time period. But in general if follow the random walk; it is line with (Meese Singletons) findings from the spot and forward exchange market. H.J. Edison, (1987), addresses that whether PPP is valid in the long run movements in exchange rates, though it is failed in the short run. However number of studies was conduct for the behavior of exchange rates, Alder Lehmann (1983), Frankel (1986), developed more statistical techniques to examine the validity of exchange rates in the long run. Both of these have provided the evidence that PPP does not hold the exchange rates behavior in the long run. This research also incorporates the error correction mechanism and discusses the empirical results which generally show the result of failure of exchange rate support by PPP in the long run. In general, the result indicates the force which exists in the economy for driving the exchange rates towards the PPP equilibrium. The main conclusion from this research is the PPP relationship does not represents the exchange rates n the long run holding, so that the PPP permanent deviations cannot ruled out. This shows the reinforcement of PPP theory that was tested the fixed rate counterpart and the equalization of prices across countries, and it supports an interpretation of the PPP doctrine. This proportionality between the exchange rates and price level emerges in the long run. Richard Meese Kenneth Rogoff, (1988), examined the relationship between real exchange rates and real interest rate differentials from different countries. It based on the joint hypothesis that the prices of the domestic currency are sticky and the disturbances of monetary policy are predominant, which would found the little evidence of a stable relationship between interest rates and exchange rates. It is true that in many cases the sign of the estimated exchange rate and interest rate differential relationship is consistent with the possible predominance of financial market disturbances, but the relationship is not stable enough to be statistically significant. In Quasi reduced form real exchange rate models, examined the real versions of alternative rational expectations monetary models of exchange rate determination. In the nominal rate models, the exchange rate depends on fundamentals such as relative national money supplies, real incomes, short-term interest rates, expected inf lation differentials, and cumulated trade balances. The rationale view for this approach is that the nominal exchange rates poor performance is primarily attributable to money demand disturbances, so it can define the close relationship between there real interest differentials and real exchange rates, because, in the class of monetary models considered here, unanticipated money demand disturbances affect both variables proportionately. Feinberg Seth Kaplan, (1992), evaluate and interacts the real exchange rates index expectations is developed and used to explore the role of determination on domestic producer prices. The fact that time path of the exchange rate will directly affect the input costs, and the price of substitutes strongly. To examine the links between both actual and anticipated movements in the dollar and relative domestic producer prices, it chooses to analyze price responses to real exchange rate changes. The effect is dependent on the nature of substitutability between imports and domestic goods. The major finding is that the period of appreciation and depreciation over the past 10 years to inhibit the pass through in to domestic prices. In depreciation the market share to enjoy the continued good times kept prices other than expected. Warren Bailey Peter Chung, (1995), considers the study that the impact of fluctuations on exchange rates and political risk is on the risks premium and is reflected the individual equity returns. It suggests the factors which is common for emerging market equity, currency and debt markets, and make empirical implications to evaluate corporate and portfolio management. If price levels and exchange rate are significantly volatile and cannot be costly hedged, are adversely affected in the real value of the domestic currency. Some evidence that exchange rate fluctuations are a priced factor in cross sections of stock return converted into a common currency. The purpose of this research is to explore the impact of fluctuations on exchange rates and political risk which is consider on stock process of individual companies from the same country. The extent of measurement is that, which exposure factors explain cross sections of returns on individual securities and industry portfolios. The result suggests that the exchange rates and political risks could be significant in equity markets. The result also suggests that the risk premium can be time varying and not be detected by assuming constantly. This research shows the results that it did not find the evidence of the equity market premiums for the currency and political risk. It complements the importance to attach the exchange rates and political risk in the international finance. J.R. Lothian M.P. Taylor, (1996), examines the real exchange rate behavior, and explains the variations in sample of stationary univariate equations in real exchange rates. It investigates the additional insight in the exchange rates behavior that can be gained by considering the floating rate from the perspective of the data. These issues can be best understood on the subject of real exchange rates stability between the currencies of the major industrialized countries. Some of the pre-float studies support the fairly stable exchange rates in the long run. Subsequently, Dornbusch (1976), Frenkel (1981), gave largely as the result of studies published, and reject the hypothesis of random walk behavior of real exchange rates. The PPP shows the empirical movements in real exchange rates were highly persistent and effective; although the PPP is reject the hypothesis of non-stationary behavior of real exchange rates in the long run. The result of this research shows that the longest span of two countries exchange rates are significantly mean reverting. The first model result indicates the 80 percent of the variation in the exchange rates of the history data of two countries. By using of another model, the results explaining the performance of remarkably well in the floating, so that they produce better forecasts of the actual exchange rates. In line with recent studies, it fined that this process of mean reverting is quit slow, with estimated adjustment of data. In the long run the PPP equilibrium is remaining a useful empirical approximation. The deviations of the PPP that observe are consistent with the existence of slowly mean reverting influences, which may be real or monetary regimes. Theory of Optimum Currency Areas: The theory of optimum currency areas, which is usually presented the other name called flexible exchange rate system, but it is proponents as a device of depreciation that take the place of unemployment when the balance of payment is deficit and appreciation when it replace inflation when it is surplus. The problem can be exposed and more revealing by defining a currency area within when exchange rates are fixed. To this three answer can be given; first certain parts of the world are going processes of economic integration, so new experience can be made and at what constitutes the optimum currency area can give the meaning of these experiments. Second those countries that have flexible exchange rates are likely to face problems with the theory of optimum currency areas, so it does not coincide the optimum currency areas with the national currency. Third the idea that illustrates the functions of currencies which have been treated in economic literature, and sometimes neglected in the problems of economic policy. In the currency area, different currency countries including national country currencies interact pace of employment in deficit, because there is the willingness to inflation by the surplus countries. The argument for flexible exchange rate system is based on national currencies, and is valid about mobility of factor, so if it is high in the country and low in the foreign countries, the flexible exchange rates system on home country currencies might work effectively. The concept of optimum currency area has practically applicable only in those areas, where the state has the political organization in the country. The factor mobility is most considered is more relative rather than absolute concept, with both industrial and geographical. It likely to change the alterations with time over time in conditions, where the conditions of political and economic stability. Money is the convenience that restricts the optimum number of currencies, so in terms of this argument the optimum currency area which is composed in number of countries. (Robert A. Mundell, 1961). In another review the author defines the stabilization of capital mobility policy under the exchange rates which is fixed and flexible in the currencies markets; it concerns the theoretical and practical approach of the increased mobility of capital. The assumption is that the interest rate differentials from the level of abroad cannot maintain by the country, if there is the degree of mobility. The securities system are perfect substitutes, because different currencies are involved can be taken in the perfect mobilization, and there exchange rates expected to persist indefinitely, but the forward and spot exchange rate are identical. It identify the monetary and fiscal policy, in which monetary policy assumed the open market purchase of securities while fiscal policy is to form of increase in government spending and financed by an increased in public debt. Its effect the floatin g exchange rate result when monetary policy does not intervene in the exchange market, but it intervene the fixed exchange rates, when the buying and selling of international reserves at the rate of fixed price. The results of this research analyze that, the fixed exchange rates is become a device for the monetary policy and for the levels of reserve, whereas the flexible exchange rates becomes a device for the fiscal policy and for the balance of trade, but policies are unaffected to the level of output and employment. The fixed exchange rates in the perfect mobility will lead to the breakdown as the absence of gold sterilization. The gold sterilization is frustrated the capital outflows and offsetting monetary changes through the exchange rates equalization. The conclude remarks is that, the fixed exchange rates as compared to flexible exchange rates is ineffective under monetary policy, but in fiscal policy both the exchange rates either fixed or flexible are remains weaker for a chieving the level of output. The flexible exchange rates under fiscal policy to play some role in employment policy that can be expected, while monetary policy can have influence on output under fixed exchange rates. In this possibility existing, it wills lesser extent in the future. (R.A. Mundell, 1968). J.H. Makin, (1978), analysis the way to deal the risks involved in foreign exchange currency positions but exchange rates are uncertain. It incorporates the exchange rate changes with the changes in the determination of overall hedging strategy. The purpose is to survey the literature rather to examine the logic on hedge no hedge strategy and to suggest the viewing problem of exchange risk. It identifies the exchange risk diversification in two groups. First diversification investigates the exchange risk with the investor point of view selecting the locations of firms in different countries which denominated in different currencies. The second considers exchange risk with the firm manager point of view to decrease the impact of exchange rate fluctuations. The study concentrates the exchange risk and not overall corporate risk, so the analysis of co Exchange Rates and Interest Rates in Pakistan Analysis Exchange Rates and Interest Rates in Pakistan Analysis Abstract This paper endeavors the relationship and the positive effect between exchange rates and interest rates in Pakistan by utilizing the foreign exchange market and current scenario of increasing interest rates because of increasing exchange rates to represent the economic position of Pakistan. The data by the researcher is all on daily basis for the above variables from the period of September 2001 to May 2008 for exchange rates, while for interest rates (6 month KIBOR) from the period of September 2001 to May 2008. The researcher implement regression model to test the effect of exchange rates progression on interest rates. So in this result, there is the issue of auto correlation exists and it shows the serial correlation between these variables. The issue should be resolved by taking time and KIBOR lag values as the dumm dependent variables. The study concludes on this way that there is the negative relationship between exchange rates and interest rates (KIBOR) in Pakistan and there i s the impact of time and KIBOR on KIBOR.. It identifies that when exchange rates increases, there is decreasing in interest rates (KIBOR). This results and relationship is consistent as predicted by Meese and Rogoff (1988). INTRODUCTION Every country has its own financial markets and it is the back bone of a countrys economy. The financial markets is divided in parts like foreign exchange market, stock market, money market, bond market etc. In this study, the researcher is focuses on the foreign exchange market, which is commonly known as Forex. It is the largest and most prolific part of financial market and defining the balancing of countrys economy, because every particular day, there are approximately one trillion amount of foreign exchange takes place in the countries around the world. The actual mechanism of the foreign exchange, that it is work as the main driving force for an any countys economy in the world. Therefore, any country in the world should challenge their currency in the global economic markets. In the exchange markets for all the countries, home country currencies trade with other foreign country currencies. The foreign exchange market system is needed for every developed and under developed cou ntry; this system known as currency in exchange determination. For the determination of the value of a currencys exchange rate, there are two main types of system is used, one is floating exchange rates system and the other is fixed exchange rates system. The intervention of government officials authorities in the foreign exchange market is to influence the exchange rate fluctuation as a worldwide phenomenon. The authorities intervene maintaining the objective to orderly market conditions that ultimately help to achieve the overall macroeconomic goals. However, the exchange rate has playing an important role in terms of the flexibility in macroeconomic framework to deal with changes in the external terms of trade, but the monetary policy also aims the national objectives of economic diversification and to support export competitiveness. The ineffective monetary policy under fixed exchange rates as compared to flexible exchange rates, but fiscal policy under both fixed and flexible exchange rates remains weaker of achieving the level of output. (R.A. Mundell, 1968). The level of currency risk changes, it has no negligible impact on the rates of change of exchange rates and on relatives rates of interest between currencies. (Clas Whilborg, 1982). The risk premium of the currency is the important factor relative to floating exchange rate system, but movements in the exchange rate are dominated by the non speculative activity and it has the adverse effect on world economy. (John bilson, 1985). The true statement that in many cases the sign of the estimated exchange rate-interest rate differential relationship is consistent with the possible predominance of financial market disturbance (R. Meese K. Rogoff, 1988). The consequences changes in the nominal interest rate reflect changes in the tightness of monetary policy. T he higher the interest rate in the country attracts the capital inflow, which causes the domestic currency appreciates, so this gets the relationship could be negative between the exchange rate and nominal interest rate differentials. (J.A. Frankel, 1979). The assets are dominated and exchange risks interest reflects the interest rate parity when different currencies affect political risk and thats why assets are issued in different currencies. Thus the interest differentials to the political risk of future capital control must be distinguished due to the effective tax that controls the place in interest earnings. (M.P. Dooley P. Isard, 1980). The concept of political risk is that the probability authority of the state will be interposed between investors in one country and investment opportunities in other countries that is the probability that controls the imposed on capital flows. (R.Z. Aliber, 1973). If price levels and exchange rate are significantly volatile and cannot be cos tly hedged, are adversely affected in the real value of the domestic currency. There is some evidence that exchange rate fluctuations are a priced factor in cross sections of stock return converted into a common currency. (W. Bailey P. Chung, 1995). In the perfect mobility the exchange rate movements and an adjustment of goods market is relative to asset market and consistent expectations. The extends that output responds to a monetary expansion in the short run, this acts as an effect on exchange depreciation which lead to an increase in interest rates. (Rudiger Dornbusch, 1976). The foreign exchange gain or loss is made in the course of covering; consider being capital assets, so this gain or loss treated on capital account. This shows the highly sensitive interest dynamics with exchange rates. (M.D. Levi, 1977). The variability of industrial production output will be higher in the regime of fixed exchange rates instead of regime of flexible exchange rates. (Flood Hodrick, 1986) . The effect of consumption goods purchases by the government is not the private utility, but per capita real government expenditure are the composite of individual consumption of goods. So notice that the demand of money its depends on consumption of goods rather than income and that is the important distinction of closed economies.(Obstfeld Rogoff, 1995). The fixed and floating exchange rates depend on higher welfare yield and on the nature of sticky prices, so the risk would be shared and there are some opportunities to aware. The evidence, which should give opportunities about price setting and risk sharing are not refined and not to make the definite conclusions for the optimal regime of the exchange rate of that country. There are three types of ways which gives stickiness in prices, the prices which would set by the firms in their own currencies, the firms would set the prices for consumers currencies, or firms would set the prices in the currencies of producers. (Charles En gel, 2001). When the exchange rates changes, it may cause to appear the changes in relative prices and make to generate additional uncertainty for equilibrium in markets. However, there is also defining that the changes in terms of trade would play the larger role of changes in the exchange rates which affect the variability of exchange rates. (A.C. Stockman, 1980). This study explores to investigate the determinants of exchange rates in developing country such as Pakistan. The framework of this study is concern to be conceptual and theoretical and is to set up the ground of unidirectional causality from exchange rates to economy. In principal, it determines the exchange rates relationship with interest rates so it will spurs the determinants in Pakistan with related to the economy. This view implies that the choice of an exchange rates regime be a relatively simple, if countries were faced to intervene regularly in the foreign exchange market to stabilize, therefore the monetary authorities intervene with the objective of maintaining orderly market conditions, which ultimately help to achieve the overall macroeconomic goals. The discretionary nature of the existing monetary policy in Pakistan is inflation, and it is targeting to hit on the Pakistani economy by focusing attention on the monetary policy. So the government of Pakistan is to make t heir monetary policy more transparent for achieving their explicit goal, and decreasing the inflation. Therefore, it is increasing the publics understanding of the central banks strategy to deliver the target, so the State Bank of Pakistan will help to provide an anchor for inflation expectations in the economy. The State Bank of Pakistan (SBP) has accorded a high priority to achieving a low rate of inflation, and the monetary policy also aims to support the objectives of the national country of Pakistan to meet their diversified economy and competitiveness in the export from other countries of the world. This study will also helpful to the SBP to developed their awareness of the relationship of exchange rates with KIBOR, so SBP may observed the controversy of their ups and downs fluctuations so it may controlled significantly. The bank treasury department should get the help because, they have continuously meet the exchange rates and make transactions of the countrys currency with others country currencies, so it should make them identify that if exchange rates increases or decreases it should not make effect on interest rates but their should be some inverse effect in nature. This effect should create controversy in the country economy so the central bank should make some authorized decisi on to controlled the exchange rates and interest rates The thesis is structures as follows. Chapter II provides literature review. Chapter III defines the outline of variables, their sample size, data sources and its formatting and the model. Chapter IV explains our findings and results. Finally Chapter V reports conclusion Chapter II Literature Review: This study relates to examine the relationship and effect between exchange rates with interest rates. Numbers of studies have done by the researchers, Robert A. Mundell, (1961), Bela Balassa (1964), Robert Z. Aliber, (1973), Rudiger Dornbusch, (1976), Richard A. Meese Kenneth Rogoff (1982), H.M.S Gerlach (1988), to investigate the determinants of exchange rates have applied in the world exchange rates market and help for different countries in their market development and economic growth. Researchers attempted to exemplify whether, how and to what extent the determinants of exchange rates market can contribute to the process of economic growth. Purchasing Power Parity Theory: The purchasing power parity theory doctrine means different things to different people. It has two versions of this theory that can be called the absolute and the relative interpretation. The first version of purchasing power theory calculated as a ratio of consumer goods prices for any country would tend to the equilibrium rates of exchange. In the second version of relative interpretation the rate of exchange rate would be determined between two countries and quoted with general levels of prices of two countries. It amend the international trade theory which would be the part of PPP, in which introducing the non-traded goods (services), but the advantage is greater in regards of traded goods than non-traded goods, because of the assumptions of marginal rates of transformation. The relationship between purchasing power parity and exchange rates provides the international comparison of national incomes and living standards (Bela Balassa, 1964). (Lawrence H. Officer, 1976) is the rese archer which gave another review of this purchasing power parity theory. It has define two applications in economics, the first application use of the conversion factor to transfer the data in one national way to another. The use of PPP is mainly the body of (index number theory) and applications of GDP that have improved over the years and path breaking studies in the area continue to appear. The second application of PPP has not the widespread acceptance, which has remained the unsophisticated applications. A.C. Stockman, (1980), develops the model of determination of exchange rates and prices of goods. The changes in prices of goods due to supply and demand would affect the changes in exchange rates with deviations of purchasing power parity. The changes in exchange rates have failed to resemble the changes in prices of goods, because exchange rates more volatile than prices levels and inflation rates. The research proposes the equilibrium of exchange rates behavior and different international goods that would have been traded. This relationship cannot be exploited by the government, because the greater the changes in terms of trade the larger the changes in exchange rates variability. The deviations from PPP persist that variation of exchange rates more than ratios of price indexes. The results found the two interpretation of the relationship between exchange rates and terms of trade. In the first, the causes that affect the changes in exchange rates would also affect the change in te rms of trade because prices of goods do not adjust to clear the markets. This interpretation would also found in the research of Dornbusch (1976), and Isard (1977), they formally differentiates the system with respect to exchange rates and allow prices to change but not the changing in asset stocks. The another interpretation presented the elasticity approach of the foreign exchange market and the relation between the trade and exchange rates. Real supply and demand shocks affect prices and the derived demand of exchange rates. The affect of such a shift has the advantage to raise the value of currency in terms of foreign currencies relative PPP. These changes in demand for foreign exchange would result the supply and demand shocks and that should affect the equilibrium of exchange rates. In second interpretation the expected rate of change of exchange rates revealed on the forward foreign exchange market. This should be related the anticipated change in the terms of trade and the i nflation differentials. A persuasive argument about the level of exchange rates is only associated with not causes of the relative prices changes. Clas Wihlborg, (1982), examined the relation of interest rates, exchange rate and currency risks in this research. It identifies the test which empirically impact of currency on interest rates and exchange rates. In this research there are three different ways in which the importance of currency risks for interest rate and exchange rate determination. First different risk characteristics of assets denominated in different currencies. Second changes in the level of risks that affect the elastic ties of substitutes among different assets and the monetary policy. Third changes in the level of risks on alternative assets which have a direct impact on rates of return. This research used the three specifications of the dependent variable to test the theory, firstly the rates of return is adjusted for the expected rate of changes in the exchange rates, second difference between nominal rates of interest and third rate of change of deviation from the exchange rate. The results presented here that substantiate the changes in the level of currency risk have a non-negligible impact on the rates of change of exchange rates and on relatives rates of interest between currencies. The risks explain the small share of variation in these variables. Another results indicate that the nominal interest rate seem to adjust in fiscal policies and savings behavior but not affect real rates of interest. But changes in relative risks level would affect relative rates on interest these changes still be important for the substitutability between assets of different currency denominations. Richard Meese Kenneth Rogoff, (1983), analysis the out of sample forecasting accuracy on various models. It estimated the horizons of the dollar with different country currencies, like Dutch mark, Japanese yen, and Britain pound that traded to weight the dollar exchange rates. Its also studied the flexible exchange rates with the monetary models of sticky price, so the model of sticky price, which incorporates the current account. The first model is structural models in which it requires to generate the forecasts of exchange rates and explanatory variables. It contains the explanatory power, but its predicted badly because the explanatory variables are difficult to predict. The second is the univariate times series model in which identify a variety of prefiltering techniques involve differencing, de-seasonalizing and removing time trends. The relative performance of these techniques is of interest in itself. The third model use is the random walk model; it should also link with this univariate time series model. It uses as the predictor of the current spot rate with the entire future spot rate, and it requires no estimation. In this research the performance of estimated univariate time series models or candidate structural model is so worse. From a methodological stand point the view that the out of sample model fit is an important criterion when evaluating exchange rate, but the estimation of out of sample is failure with time series models, that are well approximated the major country exchange rates. John Bilson, (1985), gives the empirical findings about macro economic and flexible exchange rate of the U.S dollar related to PPP theory. From the perspective of this research in which sluggish price adjustment in the commodity markets resulted in increased variability in exchange rates. For the demonstration of result it is important because the instability of floating exchange rate could be due to the inherent differences between commodity and foreign exchange markets. The determination of the expected future rate is impossible, because it is more difficult to reject the forward parity condition. The major part of the forward parity is the variation in the premium is due to the forecast. The object of this research is to determine that if the forward parity failed is the cause of instability in the same way that the failure of purchasing power parity. The findings develop that currency risk premium is the important factor relative to floating rate system, and movement in the excha nge rate are dominated by the non speculative activity and it has the adverse effect on world economy. Roger D. Huang, (1987), evaluate that the expected change in the exchange rate of two countries equals the expected differentials in their inflation rats over the same holding period. It makes the empirical evidence link with PPP theory and obtained that the changes in expected nominal exchange rate is appear to deviate inflation rate systematically. It relates the PPP based on the constraint that, in efficient market the net return to speculators engaging in speculation on goods in the foreign country. The purpose of this research is to know the equality restriction between expected nominal exchange rate and expected inflation rate differentials. The investigation should have the result that the evidence is inconsistent with the current floating exchange rates over the major industrialized countries. Since the test perform meaningful in conjunction with market efficiency and simply indicate the failure expectations. John Doukas Abdul Rahman, (1987), conducted the unit root test for the presence of evidence from the foreign exchange futures market, and gets the representation of foreign exchange currency future prices. The research describes the procedure from the foreign exchange future markets on five different currencies with varying maturity. It was found that presence in the series may cause the OLS estimates and its true value leading to errors, for small sample sizes the model has smaller forecast error. The process generate the log of currencies future rates by random walk, and it is consistent with other model of asset price determination that they imply the mean and dispersion of returns that don not change over short time period. But in general if follow the random walk; it is line with (Meese Singletons) findings from the spot and forward exchange market. H.J. Edison, (1987), addresses that whether PPP is valid in the long run movements in exchange rates, though it is failed in the short run. However number of studies was conduct for the behavior of exchange rates, Alder Lehmann (1983), Frankel (1986), developed more statistical techniques to examine the validity of exchange rates in the long run. Both of these have provided the evidence that PPP does not hold the exchange rates behavior in the long run. This research also incorporates the error correction mechanism and discusses the empirical results which generally show the result of failure of exchange rate support by PPP in the long run. In general, the result indicates the force which exists in the economy for driving the exchange rates towards the PPP equilibrium. The main conclusion from this research is the PPP relationship does not represents the exchange rates n the long run holding, so that the PPP permanent deviations cannot ruled out. This shows the reinforcement of PPP theory that was tested the fixed rate counterpart and the equalization of prices across countries, and it supports an interpretation of the PPP doctrine. This proportionality between the exchange rates and price level emerges in the long run. Richard Meese Kenneth Rogoff, (1988), examined the relationship between real exchange rates and real interest rate differentials from different countries. It based on the joint hypothesis that the prices of the domestic currency are sticky and the disturbances of monetary policy are predominant, which would found the little evidence of a stable relationship between interest rates and exchange rates. It is true that in many cases the sign of the estimated exchange rate and interest rate differential relationship is consistent with the possible predominance of financial market disturbances, but the relationship is not stable enough to be statistically significant. In Quasi reduced form real exchange rate models, examined the real versions of alternative rational expectations monetary models of exchange rate determination. In the nominal rate models, the exchange rate depends on fundamentals such as relative national money supplies, real incomes, short-term interest rates, expected inf lation differentials, and cumulated trade balances. The rationale view for this approach is that the nominal exchange rates poor performance is primarily attributable to money demand disturbances, so it can define the close relationship between there real interest differentials and real exchange rates, because, in the class of monetary models considered here, unanticipated money demand disturbances affect both variables proportionately. Feinberg Seth Kaplan, (1992), evaluate and interacts the real exchange rates index expectations is developed and used to explore the role of determination on domestic producer prices. The fact that time path of the exchange rate will directly affect the input costs, and the price of substitutes strongly. To examine the links between both actual and anticipated movements in the dollar and relative domestic producer prices, it chooses to analyze price responses to real exchange rate changes. The effect is dependent on the nature of substitutability between imports and domestic goods. The major finding is that the period of appreciation and depreciation over the past 10 years to inhibit the pass through in to domestic prices. In depreciation the market share to enjoy the continued good times kept prices other than expected. Warren Bailey Peter Chung, (1995), considers the study that the impact of fluctuations on exchange rates and political risk is on the risks premium and is reflected the individual equity returns. It suggests the factors which is common for emerging market equity, currency and debt markets, and make empirical implications to evaluate corporate and portfolio management. If price levels and exchange rate are significantly volatile and cannot be costly hedged, are adversely affected in the real value of the domestic currency. Some evidence that exchange rate fluctuations are a priced factor in cross sections of stock return converted into a common currency. The purpose of this research is to explore the impact of fluctuations on exchange rates and political risk which is consider on stock process of individual companies from the same country. The extent of measurement is that, which exposure factors explain cross sections of returns on individual securities and industry portfolios. The result suggests that the exchange rates and political risks could be significant in equity markets. The result also suggests that the risk premium can be time varying and not be detected by assuming constantly. This research shows the results that it did not find the evidence of the equity market premiums for the currency and political risk. It complements the importance to attach the exchange rates and political risk in the international finance. J.R. Lothian M.P. Taylor, (1996), examines the real exchange rate behavior, and explains the variations in sample of stationary univariate equations in real exchange rates. It investigates the additional insight in the exchange rates behavior that can be gained by considering the floating rate from the perspective of the data. These issues can be best understood on the subject of real exchange rates stability between the currencies of the major industrialized countries. Some of the pre-float studies support the fairly stable exchange rates in the long run. Subsequently, Dornbusch (1976), Frenkel (1981), gave largely as the result of studies published, and reject the hypothesis of random walk behavior of real exchange rates. The PPP shows the empirical movements in real exchange rates were highly persistent and effective; although the PPP is reject the hypothesis of non-stationary behavior of real exchange rates in the long run. The result of this research shows that the longest span of two countries exchange rates are significantly mean reverting. The first model result indicates the 80 percent of the variation in the exchange rates of the history data of two countries. By using of another model, the results explaining the performance of remarkably well in the floating, so that they produce better forecasts of the actual exchange rates. In line with recent studies, it fined that this process of mean reverting is quit slow, with estimated adjustment of data. In the long run the PPP equilibrium is remaining a useful empirical approximation. The deviations of the PPP that observe are consistent with the existence of slowly mean reverting influences, which may be real or monetary regimes. Theory of Optimum Currency Areas: The theory of optimum currency areas, which is usually presented the other name called flexible exchange rate system, but it is proponents as a device of depreciation that take the place of unemployment when the balance of payment is deficit and appreciation when it replace inflation when it is surplus. The problem can be exposed and more revealing by defining a currency area within when exchange rates are fixed. To this three answer can be given; first certain parts of the world are going processes of economic integration, so new experience can be made and at what constitutes the optimum currency area can give the meaning of these experiments. Second those countries that have flexible exchange rates are likely to face problems with the theory of optimum currency areas, so it does not coincide the optimum currency areas with the national currency. Third the idea that illustrates the functions of currencies which have been treated in economic literature, and sometimes neglected in the problems of economic policy. In the currency area, different currency countries including national country currencies interact pace of employment in deficit, because there is the willingness to inflation by the surplus countries. The argument for flexible exchange rate system is based on national currencies, and is valid about mobility of factor, so if it is high in the country and low in the foreign countries, the flexible exchange rates system on home country currencies might work effectively. The concept of optimum currency area has practically applicable only in those areas, where the state has the political organization in the country. The factor mobility is most considered is more relative rather than absolute concept, with both industrial and geographical. It likely to change the alterations with time over time in conditions, where the conditions of political and economic stability. Money is the convenience that restricts the optimum number of currencies, so in terms of this argument the optimum currency area which is composed in number of countries. (Robert A. Mundell, 1961). In another review the author defines the stabilization of capital mobility policy under the exchange rates which is fixed and flexible in the currencies markets; it concerns the theoretical and practical approach of the increased mobility of capital. The assumption is that the interest rate differentials from the level of abroad cannot maintain by the country, if there is the degree of mobility. The securities system are perfect substitutes, because different currencies are involved can be taken in the perfect mobilization, and there exchange rates expected to persist indefinitely, but the forward and spot exchange rate are identical. It identify the monetary and fiscal policy, in which monetary policy assumed the open market purchase of securities while fiscal policy is to form of increase in government spending and financed by an increased in public debt. Its effect the floatin g exchange rate result when monetary policy does not intervene in the exchange market, but it intervene the fixed exchange rates, when the buying and selling of international reserves at the rate of fixed price. The results of this research analyze that, the fixed exchange rates is become a device for the monetary policy and for the levels of reserve, whereas the flexible exchange rates becomes a device for the fiscal policy and for the balance of trade, but policies are unaffected to the level of output and employment. The fixed exchange rates in the perfect mobility will lead to the breakdown as the absence of gold sterilization. The gold sterilization is frustrated the capital outflows and offsetting monetary changes through the exchange rates equalization. The conclude remarks is that, the fixed exchange rates as compared to flexible exchange rates is ineffective under monetary policy, but in fiscal policy both the exchange rates either fixed or flexible are remains weaker for a chieving the level of output. The flexible exchange rates under fiscal policy to play some role in employment policy that can be expected, while monetary policy can have influence on output under fixed exchange rates. In this possibility existing, it wills lesser extent in the future. (R.A. Mundell, 1968). J.H. Makin, (1978), analysis the way to deal the risks involved in foreign exchange currency positions but exchange rates are uncertain. It incorporates the exchange rate changes with the changes in the determination of overall hedging strategy. The purpose is to survey the literature rather to examine the logic on hedge no hedge strategy and to suggest the viewing problem of exchange risk. It identifies the exchange risk diversification in two groups. First diversification investigates the exchange risk with the investor point of view selecting the locations of firms in different countries which denominated in different currencies. The second considers exchange risk with the firm manager point of view to decrease the impact of exchange rate fluctuations. The study concentrates the exchange risk and not overall corporate risk, so the analysis of co

The Destruction of Willy Loman in Arthur Millers Death of a Salesman :: Death Salesman essays

The Destruction of Willy Loman in Arthur Miller's Death of a Salesman  Ã‚  Ã‚  Ã‚  Ã‚   Willy Loman is a travelling salesman who has worked for the Wagner firm for 34 years. He is now 61 years old and his job has been taken off salary and put on commission. He has a family and he boasts to them that he is "vital in New England," but in fact he isn’t vital anywhere. Willy has many strong beliefs that he strives to achieve. He wants to own his own business and he wants to be "bigger than Uncle Charley" and especially he wants to be a great success and he tries to emulate Dave Singleman. He wishes to die the "Death of a Salesman" and have many buyers and salesmen mourn for him. He also tries to be a good father, and husband. However Willy’s aims in life have been useless as he hasn’t really achieved anything. He got fired by Howard, his sons are both failures and they abandoned him in a restaurant toilet. His relationship with his wife is plagued by his guilt for committing adultery. He has to borrow $50 a week from Charley. He can’t even keep his mind on one thing for a long time. He can’t drive a car. Willy gets so fed up with all of these things that he want’s to commit suicide and eventually, he does. This topic suggests that Willy’s deterioration occurs because the principals he believes in. To a large extent this is true. After 34 years of Willy’s life, he loses his job. To a normal person under normal circumstances, being retrenched is a time when you feel useless. But for Willy, since everything else is going wrong at the same time, he feels like a useless old man. Willy thought that just because he named his boss, that he would have a secure future with the company but as Charley said "them things don’t mean anything? You named him Howard, but you can’t sell that." Even though Willy wasn’t even getting paid a salary, Howard didn’t want him to even represent the company in case Willy "cracked up" again. Although Willy is mostly destroyed by his own ideals there are other things that destroy him as well, like Howard, Happy and Biff. Willy is emotionally destroyed when Howard fires him. Then, both of his sons disown and abandon him in Frank’s Chop House.

Public Private Partnerships Vasco da Gama Bridge in Portugal

Better usage of regional and municipal land use plans in the future. Conclusion Even though the project did not reach its original goal, it had a great impact on regional development. The Visas dad Gamma Bridge is a six lane bridge that spans the Tags River in Lisbon, Portugal. It is the longest bridge in Europe and has a life expectancy of 120 years. Its characteristics are described in the Table here below: Official name Point Visas dad Gamma Carries Six road lanes, 7 sections Crosses Tags River Location North of Lisbon (right bank), municipality of Allocable (left bank) Maintained by Illusions DesignerRandom Riot Design Total Length 17. 182 km, longest in Europe, 9th longest in the world Width 30 m Height 155 m Longest span 420 m Speed limit 120 km/h Serves 50 million vehicles/year Construction 1995 (beginning) – 1998 (ended) Opened 29. 03. 1998 Cost 897 million euros As a result of economic globalization, countries are seeking more efficient and effective ways to improve t heir resources. One way of doing so is through Public- private partnerships especially for the development and operation of infrastructure.Public-Private partnerships provide a tool to increase the quality and efficiency of public services and to overcome the limited public funds available in a country. APP is an agreement between the government and one or more private partners in which both sides invest different resources in order to reach the target/goal by splitting the gains and losses between them. It is usually a long-term contract between the two parties, in which the private partner bears significant risk and great management responsibility.Peps may be formed in areas such as infrastructure projects such as motorways, bridges and in service areas such as schools and hospitals. There are our typical phases in implementing a APP project: the identification of the need and the legislation involved in implementing the project, the preparation and planning and the development of a contract between the public and the private partners, the award procedure, and the implementation and control of the project. Peps offer significant advantages to the public sector.These include the ability to raise additional funds in a country with budgetary restrictions, make the best use of public sector efficiencies in operation in reducing the costs and increasing the quality and offering a quicker service. Peps come in many forms and are still evolving in order to adapt to the needs of each individual project. Several elements that have to be taken into account: Political Leadership: commitment has to come from the top. Legislative and control framework: The application of these must be followed strictly. Protecting the publics interest: Quality and performance standards are required.Public Sector Involvement: Public sector must remain actively involved once a APP is established by monitoring the project. A well structured plan: Each side must know exactly what to expect f rom the beginning of the cooperation. Responsibilities must e clearly defined. Income stream: The sources of income must be clearly defined for the whole duration of the implementation of the project. Communication with stakeholders: Open communication between the parties involved must be enforced. Ensuring open market access and competition: Open and fair competition, transparency has to be taken into account during Tendering/Bidding procedure.Selection of the right partner: The selection must be done carefully taking into account the previous experience of the candidate in the specific area. In a typical APP project, a Special Purpose Vehicle (SSP) is created, which is a separate gal entity established to undertake the project, thus it is responsible for the design, building, and operation of the project. The initial capital required for a APP project may be provided by public grants, private funds, European Commission financing, loans from the owners of the SSP and/or from banks. The SSP is a consortium usually formed by a building contractor, a maintenance company and a bank. Subcontractors may also be used in the APP in order to deliver their specialized services. Until a couple of decades ago, countries followed the traditional infrastructure procurement models. However, due to the public budget constraints and the difficulty to manage large projects, many countries experienced the need to change the traditional model of public procurement. This resulted to today's Peps model which manages to deliver large infrastructure that requires large capital availability.Opportunities and Limitations of Ifs Opportunities that may appear during the implementation of a project: The risks are allocated to the ones that can manage them and are distributed. Public sector capital expenditure is reduced Cost efficiencies are better achieved – Value for Money. Delivery of the project is faster. Construction is done more efficiently with fewer contractual errors. Bet ter quality of service. Innovation and performance of personnel involved in the project is highly encouraged and promoted through incentives.Increased productivity. Infrastructure provision is accelerated. Crisis, there is higher cost in financing a project. There is less control over budget. There is less contract flexibility. The ultimate risk is still undertaken by the public partner. Private financing is usually more complicated than public financing. There are high termination costs in case of spite. Fear of prevarication of public services may be evident. Peps in Portugal Over the last 25 years Portugal has been through a major infrastructure investment program.After the end of dictatorship in the ass, Portugal went through a political stabilization phase. In the ass, after Portugal Joined the ELI, the country was able to access large capital funds. Since the country aimed to decrease its infrastructure deficit, it was evident that a new model for procurements was required and this was the APP model. The first large project developed under the APP model was the Visas dad Gamma ridge which was created under a tight schedule in time for the 1998 World Exhibition.After that several other projects followed totaling to the number of 36 APP projects until 2012. Portugal uses the APP model mainly for the creation/extension of roads, rail, health care and security. Need for the creation of Visas dad Gamma bridge – Background information The Government of Portugal identified the need to solve the congestion problem on Elision's other bridge (25 De April Bridge), and to Join previously unconnected motorways between north and south around the capital city of Lisbon, and therefore n 1991 it decided to construct a second crossing over the Tags river.As soon as the decision was made AGATES (office for the crossing of the Tags river at Lisbon), was established which was actually an inter-ministerial agency chaired by the Ministry of Public Works, with representa tives of the Ministries of Planning, Environment, and Finance. The two main goals of AGATES were to solve the ever-increasing traffic Jam on the 25 De April Bridge and supporting the north-south traffic around Lisbon. By September 1991, AGATES issued a series of studies comparing three options/locations or a new road bridge: eastern, central, and western.The option chosen was the eastern and was based on a strategy of opening new urban development, with top priority to roadways and individual transport. This option was greatly supported by the Minister of Public Works and the municipalities surrounding that area. In April 1994, Illusions, a consortium of Portuguese, British, and French companies won the international public tender to design, construct, finance and operate the new bridge. In February 1995, the construction of the bridge begun and in 29 March 1998 it opened to the public.The project was completed in a very tight schedule in order to allow easy access for World Expo '9 8, the World's fair that India by Visas dad Gamma. The construction of the bridge is considered to be one of the largest and most successful projects of the 20th century in the history of civil engineering. It gained international recognition and was awarded with the 1st prize by the Fiber-Americana Institution of architecture and civil engineering in the year 2000.The Visas dad Gamma bridge is a cable-stayed adjoined by viaducts and it carries six road lanes, with a speed limit of 120 km/h, the same as motorways, except on one section where speed is limited to 100 km/h. On windy, rainy, and foggy days, the speed limit is reduced to 90 km/h. Fifty million vehicles cross the bridge every year. The traffic on the bridge is managed in the traffic control room located in the Toll Plaza building. The bridge has a life expectancy of 120 years. Legal Framework for Peps in Portugal The legal framework for Peps in Portugal was amended on July 27 2006 by Decree Law 141/2006, which substituted the Decree Law no. 6/2003. The new law defines the general rules of interaction of the State with APP model, from definition and conception to supervision. These principles have to be followed by the public entities t the national level. The Decree Law 141/2006 requires the division of risks between the public and the private partners, which has to be clearly specified in each APP project. It also establishes the rules to follow and states that all APP proposals have to be evaluated by a commission including the Ministry of Finance and other relevant to each specific project institutions.There is also the Code of Public Contracts (COP), which is a legal document concentrating on national and legal contexts relating to public procurement. This document derives mainly from the transposition of the EX. isolations on public procurement and it applies in projects related to services, public work contracts, and many others. More specifically, this document regulates the procedures of pub lic procurements from the beginning of the Tendering process until the selection of the successful Tender, it covers the way contracts should be awarded and sets the specific rules in doing so.It also states the follow-up rules as well as possible fines if not complied. As Monitor (2005) puts it, a key feature of the institutional setting of Peps in Portugal, is that a decision in favor of a APP has to be made with the involvement of the Ministry of Finance (experts). The APP proposals have to specify long-term budgetary implications and make necessary arrangements prior to the agreement of a APP project.Another institutional framework is a APP Unit (Parabolic), which is dedicated in implementing, facilitating, evaluating and advising APP projects. It should be noted that this project with a total value of 897 million Euros was impossible to be realized only with public funds. Therefore, the APP had to be formed project is the decision about the location of the bridge. The location of the Visas dad Gamma bridge was the fundamental element for its success. As mentioned before there were three options/locations for a new road bridge: eastern, central, and western.According to Melt (2000), the eastern (Save ©m-Monotint) location for the bridge to be constructed leads to the question Why on earth was the Save ©m-Monotint road bridge option chosen? One may answer that the decision made was due to political and financial issues. The possible alternatives to this option were the central, and western locations. The central (Shells-Barriers) and the western (Alga ©s-Traffic) location could have been better alternatives satisfying the goals of decongest, and not having the active environmental impacts that the selected location of the bridge created.Critical Analysis of APP Model chosen by the Government of Portugal – Description of app Model The project was mainly funded by the private sector under a BOOT â€Å"Build, Operate, Transfer† model, more specifically the variation of DOFF (Design, Build, Finance and Operate). The BOOT model is a type of infrastructure project based on granting of concession by a principal (I. E. Government) to a promoter (private partner) who is responsible for the construction, financing, operation, and maintenance of a project over the period of concession.A BOOT project is normally funded by a mixture of private equity, through shareholders, bank loans, and sometimes with grant aids. The shareholders carry the risks but receive a return on their investment and dividends during the concession period, while the government's reward is to obtain an infrastructure without using its own budget. Governments mainly use the BOOT model for the construction of airports, waterworks, etc. In Peps, the BOOT model involves reasonable support and risk sharing from the government side. After the concession period, the promoter transfers the facility to the principal at no cost, in a fully operational condition.In this project, Illusions had the obligation to design, construct, finance and operate the new crossing/bridge. The contract was signed in 1995, for a maximum concession period of 35 years in a design, build, finance, operate and transfer scheme. In my opinion, at the time that the contract was signed, the APP model used was the most suitable since there was the need to design and build the bridge quickly with the main funds coming from the private sector. Financial Structure of the Project and the role of the participants The Visas dad Gamma bridge cost 897 million Euros, mainly financed by the private sector.The project was funded by a combination of private equity, through bank loans, shareholders, government grants, etc. More specifically the resources for this European Investment Bank Loan grant (299 m), 33% of the project Toll revenues collected from 25 April bridge (50 m), 6% of the project other resources such as shareholders and government grants (299 m), 26% of the project Both shareholders and government benefit from the project, since they receive dividends for their investment during the concession period. It should be noted that the toll price to cross the bridge varies from 2. 0 to 11 Euros, pending on the size and type of vehicle crossing the bridge. TOTAL COST 897 MILLION EURO Table 1 (Funding of Visas dad Gamma bridge) The European Investment loan was for 20 years with no capital repayment over the first 120 months, guaranteed by the commercial banks for only 15 years. Out of the total cost of the project, around 640 million Euros was for construction, payment of land, re-housing, environmental projects, and maintenance costs. It is worth mentioning that in 2000, Illusions and the Portuguese government signed an agreement in order to extend the duration of the concession period untilIn the case of the Visas dad Gamma bridge, both the public and the private partners undertook the financial risk (currency, interest rate, equity, foreign exchange , liquidity, commercial and economic risk. They also undertook the political risk (related to the provision of loans and overall investment situation in the country). Both partners undertook the shareholder's risk (market, changes in management personnel). The private partner, Illusions, undertook the technical risk (construction, operation, and maintenance risk).Problems and Limitations of the project The European Accounts Tribunal (EAT) detected a series of irregularities in the financing and the construction of the project. Some drainage and negative results ere detected to the resistance of some of the material used in the construction of the bridge. Regarding the finance aspect, the EAT stated that 95% of the costs of the building of the structure of the bridge was funded by the European Union, which is in conflict with the regulations of the community.Recommendations A few recommendations may be welcomed at this point. There should be more compliance with project goals in the future. In addition, there should be more compliance with the European legislation in the future. Another alternative location for the bridge would have been highly recommended or the construction of two mailer bridges in different locations. Moreover, a more careful study has to be made regarding the location of future similar projects, and a better usage of regional and municipal land use plans in the future is recommended.Conclusion Even though there is a lot of criticism about the APP of Visas dad Gamma bridge in Portugal, it is evident that without this procurement model the fast development of under public scrutiny. The Visas dad Gamma bridge aimed to solve the decongest problem of the other bridge of Lisbon (the 25 April bridge) and to create the north-south connection around the capital city. According to data, traders prefer to use the bridge in Scorecard (30 km from Lisbon to the North, built after the Visas dad Gamma bridge.This bridge seems to have solved the problem of the north-south connection around the capital city. The daily traffic on the Visas dad Gamma bridge is approximately 70,000 vehicles, which is below the daily traffic on the 25 April bridge with approximately 170,000 vehicles per day. Taking this into consideration, we conclude that Visas dad Gamma bridge did not manage to meet the expectations and to solve the decongest problem, however it affected positively other areas such are regional development.

Cloze Tests to Determine Reading Comprehension

When teachers wish to measure how well a student comprehends a reading passage, they often turn to Cloze tests. In a Cloze test, the teacher removes a certain number of words that the student then needs to fill in as they read through the passage. For example, a language arts teacher might have their students fill in the blanks for the following reading passage: _____ mother is upset with _____ because I got caught  _____ a rainstorm. Sadly, I ______ my umbrella at home. _____ clothes got soaked. I ______ I wont get sick. Students are then instructed to fill in the blanks for the passage. Teachers are able to use the student’s answers to determine the reading level of the passage. Why Readability Formulas Are Not Enough While readability formulas can tell teachers how complex a reading passage is based on vocabulary and grammar, it does not reveal how difficult a passage might be in terms of reading comprehension. For example: He waved his hands.He waived his rights. If you were to run these sentences through readability formulas, they would have similar scores. However, it is obvious that while students might easily understand the first sentence, they might not comprehend the legal implications of the second. Therefore, we need a method to help teachers measure how difficult a particular passage is for students to comprehend. History of the Cloze Test In 1953, Wilson L. Taylor researched closure tasks as a method to determine reading comprehension. What he found was that having students use context clues from the surrounding words to fill in the blanks as in the example above has a high correlation with how readable the passage is for the student. He called this procedure a Cloze Test. Over time, researchers  have tested the Cloze method and found that it does indeed indicate reading comprehension levels.   How to Create a Typical Cloze Test There are a number of methods that teachers use to create Cloze tests. Following is one of the most common methods used: Replace every fifth word with a blank. This is where the students are to fill in the missing word.Have students write only one word in each blank. They are to work through the test making sure to write a word for each missing word in the passage.Encourage students to guess as they go through the test.Tell students that they do not need to worry about spelling errors as these will not be counted against them. Once you have administered a Cloze test, you will need to ‘grade’ it. As you explained to your students, misspellings are to be ignored. You are only looking for how well students understood what words to use based on contextual clues. However, in most instances, you will only count an answer as correct if the student answers with the exact missing word. In the example above, the correct answers should be:   My mother is upset with me because I got caught  in a rainstorm. Sadly, I left my umbrella at home. My clothes got soaked. I hope I wont get sick. Teachers can count up the number of errors and assign a percentage score based on the number of words that the student guessed correctly. According to Nielsen, a score of 60% or more indicates reasonable comprehension on the part of the student. Using Cloze Tests There are a number of ways that teachers can use Cloze Tests. One of the most effective uses of these tests is to help them make decisions about reading passages that they will be assigning to their students. The Cloze procedure can help them determine what passages to assign students, how long to give them to read specific passages, and how much they can expect students to comprehend on their own without additional input from the teacher. Note, however, that Cloze tests are diagnostic. Since they are not standard assignments testing a student’s understanding of  the  material that has been taught, the student’s percentage score should not be used when figuring out their final grade for the course. Source Jakob Nielsen, Cloze Test for Reading Comprehension. Nielsen  Norman  Group, February 2011