International Financial Market and Institutions

Running head: INTERNATIONAL FINANCIAL MARKET AND INSTITUTIONS
International financial market and institutions
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INTERNATIONAL FINANCIAL MARKET AND INSTITUTIONS
Executive summary:
The report is prepared for evaluating the monetary policy of Singapore in terms of its
contribution to the economy. In this regard, the report demonstrates the history of the
monetary policy and its importance to the economy. It has been found from the analysis that
Singapore has unique monetary policy that does not regulate interest rate; however, it is
centered on the exchange rate. Furthermore, the current monetary policy of Singapore and
any alterations in the policy framework has been explained. The advantages and
disadvantages of the existing monetary policy has also been demonstrated in the report.

INTERNATIONAL FINANCIAL MARKET AND INSTITUTIONS
Table of Contents
Introduction:...............................................................................................................................2
Discussion:.................................................................................................................................2
History of monetary policy:.......................................................................................................2
Importance of monetary policy:.................................................................................................2
Tools and role of monetary policy:............................................................................................2
Exchange rate system and monetary policy:..............................................................................2
Current monetary policy in operation:.......................................................................................2
Pros and cons of monetary policy:.............................................................................................2
Future direction of Singapore monetary policy:........................................................................2
Conclusion:................................................................................................................................2

INTERNATIONAL FINANCIAL MARKET AND INSTITUTIONS
Introduction:
The monetary policy of Singapore is based on controlling of the exchange rate that is
promoting stability in price intended to support sustainable economic growth. Such policy is
managed by the monetary authority of Singapore by making alterations in exchange rate
instead of change in rate of interest. This enables the dollar of Singapore to fall or rise against
its main trading partner currency using a policy band that is not disclosed and is based on
then nominal effective rate of exchange. An ideal intermediate target of monetary policy in
the open and small economy of Singapore is represented by exchange rate (Schnabl 2016).
Discussion:
History of monetary policy:
In the early 1970s, monetary policy was conducted by relying on the minimum
reserve requirement of the banks intended to curb inflation and manage economy.
The core aspect of the monetary policy of Singapore is based on the exchange rate
since 1981 with the objective of promoting price stability. Historical development of
monetary policy of Singapore was founded in 1819 by the British. The positioning of the
country as regional trading centre led to the outcome of monetary and currency arrangements.
Through the early 1890, the monetary policy of Singapore evolved with exchange rate at its
center (Arize et al. 2017). Such policy emerged as the outcome of achieving the objective of
price stability.
Therefore, the exchange rate of Singapore is managed by monetary authority of
Singapore against a trade weighted basket of currencies. Any change in the trade pattern of
Singapore is accounted by periodically revising and reviewing the composition of basket.