Market-oriented strategies and FDI

• Market-oriented strategies aim to enhance economic performance through free market principles.

Promotion of Foreign Direct Investment (FDI)

• Governments can attract FDI by improving the ease of doing business.
• Lowering taxes incentivizes FDI.
• Reducing regulation makes a country more appealing for FDI.

Floating Exchange Rate Systems

• In a free-floating currency system, a currency's value is determined by market supply and demand.
• Central banks do not intervene, and the exchange rate isn't a monetary policy target.
• Currency trading is global, making currencies like commodities that are subject to speculation and volatility.
• A strong currency benefits consumers.
• A weak currency benefits producers.
• Floating exchange rates can automatically correct current account deficits via expenditure-switching effects.
• Floating exchange rates act as macroeconomic shock absorbers, with currency depreciation aiding export industries during recessions.
• Central banks don't need large foreign exchange reserves.
• Capital flows freely across borders.
• The impact of floating exchange rates on trade and growth depends on an economy's openness to trade and investment.
• The UK's trade is 70% of its GDP.
• Singapore's trade-to-GDP ratio exceeds 350%, thus monetary policy focuses on exchange rate management.
• Singapore uses a managed float against a basket of major trading partners' currencies.
• Speculative activity occurs even with fixed exchange rates, especially those seen as weak.
• Floating currencies are not inevitably volatile; the Sterling is a floating currency yet yields on bonds are low for overseas investors.
• Non-price factors often influence trade, reducing the significance of exchange rates on trade balances.

Microfinance Systems

• Microfinance offers banking services to low-income individuals without typical access.
• Microfinance connects small lenders with small borrowers.
• Microfinance typically involves higher risk but can also yield higher returns.
• Microfinance often involves flows from developed to developing countries.
• Individuals usually provide microfinance.
• Returns are possible if businesses succeed.
• Microfinance can be charitable.
• Microfinance became prominent with the advent of the internet.
• Deregulation may lead to abuse and fraud on a small level.
• Microfinance can help address savings gaps and demographic inequalities.

Privatization

• Privatization is the transfer of state-owned companies to private ownership.
• Privatization was a key concept championed by Thatcher.
• Privatization doesn't always have to be complete.
• Examples include British Gas, BT (British Telecom), and many UK train lines.
• Privatization incentivizes efficiency and harder work.
• Competition from other firms can foster quality, lower prices, and increased efficiency.
• Increased profits from competition can be reinvested into capital, boosting productivity and dynamic efficiency.
• Companies may not reinvest profits into R&D, hindering dynamic efficiency.

Governments can attract Foreign Direct Investment (FDI) by improving business conditions, lowering taxes, and reducing regulation. In floating exchange rate systems the currency value reflects market supply and demand. Floating exchange rates can correct current account deficits.