Bali is Simply the World's Best Island

Bali is magical. As probably the most famous island in Indonesia, Bali blends spectacular mountain scenery and beautiful beaches with warm and friendly people, a vibrant culture and out of this world resorts.

Travel & Leisure Magazine has awarded Bali the World’s Best Island in 2009, while the Lonely Planet’s Best of Travel 2010 ranked Bali second place among the world’s Top Regions.

Also known as the Land of the Gods, Bali appeals through its sheer natural beauty of looming volcanoes and lush terraced rice fields that exude peace and serenity. Bali enchants with its dramatic dances and colourful ceremonies, its arts and crafts, to its luxurious beach resorts and exciting night life.  For this exotic island has much to offer, from inspirational spirituality to fine dining and meeting experiences, from world class surfing and diving to exhilarating treks in the wild. And everywhere you will find intricately carved temples.

For the Balinese, who embrace the Hindu religion, are a most devout people where a large part of their lives is dedicated to rites and ceremonies aimed at maintaining harmony in this world.  Indeed, this relatively small island holds many surprises.

This is a miraculous island indeed, for after decades of popularity, Bali continues to amaze both local and international visitors alike.  Here gather a variety of visitors from around the globe: from those who come to surf the waves of Kuta, Uluwatu and Dreamland, to others who love the panoramic beauty of mountains and lakes at  Batur, Kintamani, or  Lake Beratan at  Bedugul, to those who merely love shopping or spend endless days on the beach.

Bali’s white beaches are favourite for family holidays. There are a variety of water sports available, such as banana boats, parasailing or jet skiing, swimming or plain sunbathing. Cruises to the surrounding islands can be taken from here as well as submarine dives to watch the tropical underwater life from within safe compartments.  

Most well known among Bali’s beaches is Kuta beach, the best spot to watch dramatic sunsets. Further back along this stretch are an array of hotels, - from five stars to simple home stay -  restaurants and shops and cafes, while in the evenings the area throbs to the beat of disco music.

Or for a quieter evening enjoy the beach at Jimbaran, a popular spot to eat fresh barbecued seafood in the evenings, while watching from a distance the lights of planes landing and taking off from Bali’s Ngurah Rai airport. Located here are some of Bali’s best hotels like the Four Seasons and the Bali Intercontinental hotel. Jimbaran is also renowned for the Barong trance dance.

Further west of Kuta are Legian and Seminyak. On the other side of the peninsula is the more sedate Sanur Beach, which is also dotted with hotels and restaurants, or visit Nusa Dua, where more private beaches front super de-luxe hotel.




 source :
google images
http://www.indonesia.travel/en/destination/73/bali

How the Bank Influences an Economy

A central bank can be said to have two main kinds of functions: (1) macroeconomic when regulating inflation and price stability and (2) microeconomic when functioning as a lender of last resort. (For background reading on macroeconomics, see Macroeconomic Analysis.)

Macroeconomic Influences 
 
As it is responsible for price stability, the central bank must regulate the level of inflation by controlling money supplies by means of monetary policy. The central bank performs open market transactions that either inject the market with liquidity or absorb extra funds, directly affecting the level of inflation. To increase the amount of money in circulation and decrease the interest rate (cost) for borrowing, the central bank can buy government bonds, bills, or other government-issued notes. This buying can, however, also lead to higher inflation. When it needs to absorb money to reduce inflation, the central bank will sell government bonds on the open market, which increases the interest rate and discourages borrowing. Open market operations are the key means by which a central bank controls inflation, money supply, and price stability.

Microeconomic Influences

 
The establishment of central banks as lender of last resort has pushed the need for their freedom from commercial banking. A commercial bank offers funds to clients on a first come, first serve basis. If the commercial bank does not have enough liquidity to meet its clients' demands (commercial banks typically do not hold reserves equal to the needs of the entire market), the commercial bank can turn to the central bank to borrow additional funds. This provides the system with stability in an objective way; central banks cannot favor any particular commercial bank. As such, many central banks will hold commercial-bank reserves that are based on a ratio of each commercial bank's deposits. Thus, a central bank may require all commercial banks to keep, for example, a 1:10 reserve/deposit ratio. Enforcing a policy of commercial bank reserves functions as another means to control money supply in the market. Not all central banks, however, require commercial banks to deposit reserves. The United Kingdom, for example, does not have this policy while the United States does.

The rate at which commercial banks and other lending facilities can borrow short-term funds from the central bank is called the discount rate (which is set by the central bank and provides a base rate for interest rates). It has been argued that, for open market transactions to become more efficient, the discount rate should keep the banks from perpetual borrowing, which would disrupt the market's money supply and the central bank's monetary policy. By borrowing too much, the commercial bank will be circulating more money in the system. Use of the discount rate can be restricted by making it unattractive when used repeatedly.

Transitional Economies
Today developing economies are faced with issues such as the transition from managed to free market economies. The main concern is often controlling inflation. This can lead to the creation of an independent central bank but can take some time, given that many developing nations maintain control over their economies in an effort to retain control of their power. But government intervention, whether direct or indirect through fiscal policy, can stunt central bank development. Unfortunately, many developing nations are faced with civil disorder or war, which can force a government to divert funds away from the development of the economy as a whole. Nonetheless, one factor that seems to be confirmed is that, for a market economy to develop, a stable currency (whether achieved through a fixed or floating exchange rate) is needed. However, the central banks in both industrial and emerging economies are dynamic because there is no guaranteed way to run an economy regardless of its stage of development.

Conclusion
Central banks are responsible for overseeing the monetary system for a nation (or group of nations), along with a wide range of other responsibilities, from overseeing monetary policy to implementing specific goals such as currency stability, low inflation and full employment. 

source :  

Reem Heakal on June 05, 2010 

http://www.investopedia.com/articles/03/050703.asp

SKILL BERBAHASA INGGRIS DI ERA GLOBALISASI

KELAS           : 4EA01

 

KELOMPOK :

ARGEN PURNAREZKA  -  11210014

ADE BAGUS SAPUTRA - 19210098

PUTRA MAULANA SANDRI  - 15210428

IRFAN FAHMI - 18210889

CIPTA NUGRAHA - 11210602

BAB I 

PENDAHULUAN 

1. Latar Belakang 

 

Mempelajari bahasa inggris adalah sebagai bekal disaat kita semua akan melangkah dalam kehidupan globalisasi. Setiap orang wajib bergelut dalam dunia globalisasi jika ingin berkembang dan tidak berjalan di tempat. Dengan menguasai bahasa inggris seseorang dapat berkomunikasi lebih jauh, sehingga wawasannya dalam teknologi informasi sendiri akan lebih terbuka, dan memiliki kemampuan berkomunikasi menggunakan bahasa inggris adalah salah satu modal besar untuk melangkah dalam dunia dan kemajuan teknologi yang selalu bergerak maju.

Bahasa Inggris merupakan bahasa internasional di dunia, dan sudah menjadi bahasa pengantar No 1 di dunia, jadi mau tidak mau bahasa Inggris harus dikuasai secara aktif baik lisan maupun tulisan. Tidaklah mustahil perkembangan teknologi yang semakin pesat menuntut kita untuk lebih proaktif dalam menanggapi arus informasi global sebagai aset dalam memenuhi kebutuhan pasar.

Sebagai bahasa pergaulan dunia bahasa Inggris bukan hanya sebagai kebutuhan akademis karena penguasaannya hanya terbatas pada aspek pengetahuan bahasa melainkan sebagai media komunikasi global. Di dunia usaha yang makin mengglobal, semakin banyak perusahaan lokal  termasuk perusahaan Indonesia telah masuk ke pasar dunia dan menggunakan bahasa inggris sebagai alat komunikasi utama, dan semakin banyak perusahaan internasional yang masuk ke pasar lokal, penggunaan bahasa Inggris yang menjadi bahasa ”bisnis” makin dirasakan sebagai suatu keharusan. 

Selain itu, terlihat banyak sekali kasus yang kita jumpai dimana seringkali negosiasi gagal karena salah paham dengan calon mitra asing, pekerjaan tertunda karena komunikasi yang terbata-bata dengan klien dari Negara lain atau lamaran kerja di sebuah perusahaan asing ditolak karena kemampuan berbahasa Inggris yang kurang dan kesempatan kerja sama dengan perusahaan kelas internasional batal akibat tidak bisa menyediakan tenaga kerja yang bisa berbahasa Inggris.

BAB II 

PEMBAHASAN

1. Bahasa Inggris di Era Globalisasi

Kemampuan berbahasa inggris masyarakat di Indonesia diakui masih sangat minim. Menurut penelitian yang diadakan dari tahun 2007-2009 yang diadakan oleh sebuah lembaga dapat disimpulkan berbahasa inggris masyarakat Indonesia menduduki peringkat ke-34 dari 44 negara yang memiliki bahasa ibu selain bahasa inggris. Indonesia masih kalah jauh dengan negara tetangga Malaysia yang menduduki peringkat ke-9. Banyak alasan yang dikeluhkan oleh masyarakat Indonesia dalam belajar bahasa inggris, seperti sulit dipelajari atau terlalu rumit, merasa bahasa inggris itu tidak terlalu penting, atau bagi orang yang sudah tua sudah terlambat untuk belajar bahasa inggris. Padahal bahasa inggris adalah bahasa yang sangatlah penting dan harus dikuasai oleh masyarakat dan tidak pandang usia, terutama bagi orang-orang yang sedang mencari pekerjaan atau pun yang sudah punya pekerjaan.

Banyak perusahaan besar maupun kecil atau lembaga-lembaga pemerintahan yang menuntut seseorang untuk mahir berbahasa inggris. Di iklan-iklan lamaran pekerjaan pun banyak yang mencantumkan para pelamar menguasai bahasa inggris. Bahasa inggris harus sangat dikuasai karena bahasa inggris adalah bahasa pergaulan dunia atau bahasa internasional. Bahasa ini digunakan untuk berkomunikasi dan berinteraksi dalam pertukaran IPTEK dan kerja sama dalam dunia bisnis dengan para pengusaha dari negara lain. Kesempatan kerja bagi seseorang yang menguasai bahasa inggris sangatlah terbuka lebar diterima kerja di perusahaan atau lembaga-lembaga swasta atau pemerintahan. Dapat dipastikan pula dapat mendapatkan posisi yang bagus di perusahaan atau lembaga tersebut. Tanpa bahasa inggris sulit bagi seseorang dalam memperoleh pekerjaan yang bagus. 

Lambat laun Negara Indonesia akan menggunakan system seperti negara maju lainnya, yaitu pasar global yaitu dimana seluruh orang di berbagai Negara dapat bekerja di Indonesia tanpa memandang profesi, Pada zaman globalisasi, mampu dan mahir menguasai bahasa inggris merupakan nilai plus karena disetiap perusahaan persyaratan yang harus dimiliki seseorang pekerja atau karyawan apalagi jika perusahaan tersebut berskala internasional. Kesadaran pentinganya berbahasa inggris baru disadari seseorang setelah mencari info beasiswa atau mencari pekerja yang membutuhkan kemampuan berbahasa inggris baik lisan maupun tulisan. oleh karena itu banyak orang yang mengasah kemampuan berbahasa inggris sejak kecil. Salah satu persyaratan yang harus dimiliki seseorang untuk mendapatkan pekerjaan berskala internasional maupun mendapatkan beasiswa luar negri harus mengada test TOEFL. Test TOEFL digunakan untuk mengetahui seberapa mahir seseorang dalam menguasai bahasa ingris. Minimal pesyaratan nilai TOEFL yang harus dicapai seseorang adalah 550

  

Di Negara Indonesia masih banyak yang memiliki persepsi bahwa bahasa inggris itu sulit, oleh karena itu generasi muda masih banyak yang enggan belajar bahasa inggris. Beberapa hal yang harus diperhatikan seseorang untuk memudahkan mempelajari bahasa inggris, diantaranya :

1.      Mengenali bahasa inggris

2.      Mulai menyukai bahasa inggris

3.   Mendengarkan, membaca dan menonton film yang mengunakan bahasa inggris, karena apabila seseorang terbiasa mendengarkan kata kata yan mengunakan bahasa inggris maka otak kita akan otomatis merekam bahasa inggris yang pernah kita dengarkan tersebut.

4.      Berani mengekspresikan diri mengunakan bahasa Inggris

BAB III

KESIMPULAN

Bahasa Inggris merupakan bahasa yang digunakan oleh seluruh dunia, maka perlu bagi kita semua untuk mempelajarinya dan terbiasa untuk berbahasa Inggris. Dalam dunia modern yang penuh dengan tantangan dan persaingan yang super ketat ini, setiap orang disarankan tidak hanya memiliki tingkat pendidikan yang tinggi, namun juga dituntut ketrampilan khusus yang lazim kita sebut ‘skill’. Salah satu ’skill’ yang paling dibutuhkan saat ini adalah Bahasa Inggris. Bahasa Inggris merupakan bahasa global, maka bagi mereka yang ingin selangkah lebih maju dari orang pada umumnya, perlu bahkan harus menguasai Bahasa Inggris.

 

sumber : 

http://www.kampunginggrisunicef.com/2013/12/pentingnya-bahasa-inggris-di-dunia.html

http://aryani0194.blogspot.com/2012/10/pentingnya-bahasa-inggris-di-era_9.html

http://manado.tribunnews.com/2012/06/25/pentingnya-berbahasa-inggris-di-era-globalisasi

Indonesia Improve Tourism Statistics To Create Better Jobs In Tourism Industry

Tourism plays a key role in the economic development of Indonesia. Last year, the contribution of the tourism industry to the GDP was more than 3 per cent and the number of visitors to the country is also continuously growing, around 7 million foreign visitors in 2010 and more than 122 million domestic tourists in 2010.

Press release | 26 May 2011

JAKARTA (ILO News): Tourism plays a key role in the economic development of Indonesia. Last year, the contribution of the tourism industry to the GDP was more than 3 per cent and the number of visitors to the country is also continuously growing, around 7 million foreign visitors in 2010 and more than 122 million domestic tourists in 2010.

In order to gain an understanding of the exact nature and scope of the tourism industries, tourist behaviour and consumption patterns, it is necessary to have in place an accurate, efficient and timely method of compilation and assessment of tourism statistics. Tourism offers a wide variety of types of occupation, from low-skilled, low-value-added to very high-skilled and very high-value-added. The tourism industries also attract top level managers specialised in hotel, catering and tourism-characteristic activities.

However, the employment in the tourism industries, in general, and the economic value of tourism in terms of employment, as a source of productive labour in particular, remain inadequately measured and insufficiently studied.

Taking into consideration the notable achievements of Indonesia in the development of national tourism statistics and production of data on employment in the tourism industries within the Tourism Satellite Account (TSA) framework at different administrative levels, Indonesia had been selected as a pilot country for the Joint ILO/UNWTO project on measurement of employment and decent work in the tourism industry since last year. The project aimed to carry out an in-depth study on possible ways of applying the latest international recommendations in the field of tourism statistics to produce new sets of data on employment in the tourism industries beyond the TSA.

To better measure the employment in the tourism industry, the International Labour Organization (ILO), in collaboration with the Ministry of Culture and Tourism and the National Statistic Agency, conducted a two-day national workshop from 24 – 25 May 2011. The workshop aimed to disseminate the result of the study and to formulate possible next steps in order to improve quality of the current data collection and possible collection of new data on employment.

“Tourism statistics play a key role in determining policy and planning through the determination of preferred products, marketing and promotion through the identification of source markets and so forth. Notably, tourism plays a crucial role in the creation of employment,” said Peter van Rooij, Country Director of the ILO in Indonesia.

The workshop discussed the challenges of moving from the traditional approach based on the economic side of employment (through the supplied and consumed tourism products) to its human or individual significance, i.e., to collect data not only on the number of full-equivalent jobs but also on the number of persons employed in tourism-characteristic jobs, the working conditions of persons engaged in tourism-characteristic activities (working hours, wages and salaries, education level) as well as their employment status in terms of whether they are salaried or self-employed workers.

The workshop identified key problems and challenges concerning the methodology and quality of data. It concluded, among others, that stronger coordination between the national and provincial level is necessary in setting the standard procedures of data collection. The workshop also highlighted the need for sensitizing the key stakeholders on the importance of collecting the right data as an effort to have better understanding on human significance in the tourism industry. 

source : http://www.ilo.org/jakarta/info/public/pr/WCMS_157692/lang--en/index.htm

Asian Financial Crisis

Definition of 'Asian Financial Crisis' Also called the "Asian Contagion", this was a series of currency devaluations and other events that spread through many Asian markets beginning in the summer of 1997. The currency markets first failed in Thailand as the result of the government's decision to no longer peg the local currency to the U.S. dollar. Currency declines spread rapidly throughout South Asia, in turn causing stock market declines, reduced import revenues and even government upheaval. The Asian Financial Crisis was stemmed somewhat by financial intervention from the International Monetary Fund and the World Bank. However, market declines were also felt in the United States, Europe and Russia as the Asian economies slumped.

As a result of the crisis, many nations adopted protectionist measures to ensure the stability of their own currency. Often this led to heavy buying of U.S. Treasuries, which are used as a global investment by most of the world's sovereignties. The Asian crisis led to some needed financial and government reforms in countries like Thailand, South Korea, Japan and Indonesia. It also serves as a valuable case study for economists who try to understand the interwoven markets of today, especially as it relates to currency trading and national accounts management.    INDONESIA  FACE THE ASIAN CRISIS In June 1997, Indonesia seemed far from crisis. Unlike Thailand, Indonesia had low inflation, a trade surplus of more than $900 million, huge foreign exchange reserves of more than $20 billion, and a good banking sector. But a large number of Indonesian corporations had been borrowing in U.S. dollars. During the preceding years, as the rupiah had strengthened respective to the dollar, this practice had worked well for these corporations; their effective levels of debt and financing costs had decreased as the local currency's value rose. In July 1997, when Thailand floated the baht, Indonesia's monetary authorities widened the rupiah currency trading band from 8% to 12%. The rupiah suddenly came under severe attack in August. On 14 August 1997, the managed floating exchange regime was replaced by a free-floating exchange rate arrangement. The rupiah dropped further. The IMF came forward with a rescue package of $23 billion, but the rupiah was sinking further amid fears over corporate debts, massive selling of rupiah, and strong demand for dollars. The rupiah and the Jakarta Stock Exchange touched a historic low in September. Moody's eventually downgraded Indonesia's long-term debt to 'junk bond'. Although the rupiah crisis began in July and August 1997, it intensified in November when the effects of that summer devaluation showed up on corporate balance sheets. Companies that had borrowed in dollars had to face the higher costs imposed upon them by the rupiah's decline, and many reacted by buying dollars through selling rupiah, undermining the value of the latter further. In February 1998, President Suharto sacked Bank Indonesia Governor J. Soedradjad Djiwandono, but this proved insufficient. Suharto resigned under public pressure in May 1998 and Vice President B. J. Habibie was elevated in his place. Before the crisis, the exchange rate between the rupiah and the dollar was roughly 2,600 rupiah to 1 USD. The rate plunged to over 11,000 rupiah to 1 USD on 9 January 1998, with spot rates over 14,000 during 23–26 January and trading again over 14,000 for about six weeks during June–July 1998. On 31 December 1998, the rate was almost exactly 8,000 to 1 USD.   Indonesia lost 13.5% of its GDP that year. After the crisis, on 2000, the Malaysia's SOE acquired Indonesia's SOE, the example is the banking sector, Maybank (Malaysian Banking Berhad, Malaysia state-owned bank) acquired BNI (Bank Negara Indonesia, Indonesia state-owned bank) on December 29, 1999 – January 1, 2000 with the agreement signature by Abdurrahman Wahid (4th President of Indonesia) and Salahuddin of Selangor (11th Yang di-Pertuan Agong of Malaysia). The crisis also brought independence to East Timor.     source :  http://www.investopedia.com/terms/a/asian-financial-crisis.asp http://en.wikipedia.org/wiki/1997_Asian_financial_crisis

Cost-Push Inflation Versus Demand-Pull Inflation

 

Do you remember how much less you paid for things even two years ago? This increase in the general price level of goods and services in an economy is inflation, measured by the Consumer Price Index and the Producer Price Index. But there are different types of inflation, depending on its cause. Here we examine cost-push inflation and demand-pull inflation.

Factors of Inflation
Inflation is defined as the rate (%) at which the general price level of goods and services is rising, causing purchasing power to fall. This is different from a rise and fall in the price of a particular good or service. Individual prices rise and fall all the time in a market economy, reflecting consumer choices or preferences and changing costs. So if the cost of one item, say a particular model car, increases because demand for it is high, this is not considered inflation. Inflation occurs when most prices are rising by some degree across the whole economy. This is caused by four possible factors, each of which is related to basic economic principles of changes in supply and demand:

1. Increase in the money supply.
2. Decrease in the demand for money.
3. Decrease in the aggregate supply of goods and services.
4. Increase in the aggregate demand for goods and services.

In this look at what inflation is and how it works, we will ignore the effects of money supply on inflation and concentrate specifically on the effects of aggregate supply and demand: cost-push and demand-pull inflation.

Cost-Push Inflation
Aggregate supply is the total volume of goods and services produced by an economy at a given price level. When there is a decrease in the aggregate supply of goods and services stemming from an increase in the cost of production, we have cost-push inflation. Cost-push inflation basically means that prices have been "pushed up" by increases in costs of any of the four factors of production (labor, capital, land or entrepreneurship) when companies are already running at full production capacity. With higher production costs and productivity maximized, companies cannot maintain profit margins by producing the same amounts of goods and services. As a result, the increased costs are passed on to consumers, causing a rise in the general price level (inflation).

Production Costs
To understand better their effect on inflation, let's take a look into how and why production costs can change. A company may need to increases wages if laborers demand higher salaries (due to increasing prices and thus cost of living) or if labor becomes more specialized. If the cost of labor, a factor of production, increases, the company has to allocate more resources to pay for the creation of its goods or services. To continue to maintain (or increase) profit margins, the company passes the increased costs of production on to the consumer, making retail prices higher. Along with increasing sales, increasing prices is a way for companies to constantly increase their bottom lines and essentially grow. Another factor that can cause increases in production costs is a rise in the price of raw materials. This could occur because of scarcity of raw materials, an increase in the cost of labor and/or an increase in the cost of importing raw materials and labor (if the they are overseas), which is caused by a depreciation in their home currency. The government may also increase taxes to cover higher fuel and energy costs, forcing companies to allocate more resources to paying taxes.

Putting It Together
To visualize how cost-push inflation works, we can use a simple price-quantity graph showing what happens to shifts in aggregate supply. The graph below shows the level of output that can be achieved at each price level. As production costs increase, aggregate supply decreases from AS1 to AS2 (given production is at full capacity), causing an increase in the price level from P1 to P2. The rationale behind this increase is that, for companies to maintain (or increase) profit margins, they will need to raise the retail price paid by consumers, thereby causing inflation.

Demand-Pull Inflation
Demand-pull inflation occurs when there is an increase in aggregate demand, categorized by the four sections of the macroeconomy: households, businesses, governments and foreign buyers. When these four sectors concurrently want to purchase more output than the economy can produce, they compete to purchase limited amounts of goods and services. Buyers in essence "bid prices up", again, causing inflation. This excessive demand, also referred to as "too much money chasing too few goods", usually occurs in an expanding economy.

Factors Pulling Prices Up
The increase in aggregate demand that causes demand-pull inflation can be the result of various economic dynamics. For example, an increase in government purchases can increase aggregate demand, thus pulling up prices. Another factor can be the depreciation of local exchange rates, which raises the price of imports and, for foreigners, reduces the price of exports. As a result, the purchasing of imports decreases while the buying of exports by foreigners increases, thereby raising the overall level of aggregate demand (we are assuming aggregate supply cannot keep up with aggregate demand as a result of full employment in the economy). Rapid overseas growth can also ignite an increase in demand as more exports are consumed by foreigners. Finally, if government reduces taxes, households are left with more disposable income in their pockets. This in turn leads to increased consumer spending, thus increasing aggregate demand and eventually causing demand-pull inflation. The results of reduced taxes can lead also to growing consumer confidence in the local economy, which further increases aggregate demand.

Putting It Together

Demand-pull inflation is a product of an increase in aggregate demand that is faster than the corresponding increase in aggregate supply. When aggregate demand increases without a change in aggregate supply, the ‘quantity supplied' will increase (given production is not at full capacity). Looking again at the price-quantity graph, we can see the relationship between aggregate supply and demand. If aggregate demand increases from AD1 to AD2, in the short run, this will not change (shift) aggregate supply, but cause a change in the quantity supplied as represented by a movement along the AS curve. The rationale behind this lack of shift in aggregate supply is that aggregate demand tends to react faster to changes in economic conditions than aggregate supply.

As companies increase production due to increased demand, the cost to produce each additional output increases, as represented by the change from P1 to P2. The rationale behind this change is that companies would need to pay workers more money (e.g. overtime) and/or invest in additional equipment to keep up with demand, thereby increasing the cost of production. Just like cost-push inflation, demand-pull inflation can occur as companies, to maintain profit levels, pass on the higher cost of production to consumers' prices.

Conclusion
Inflation is not simply a matter of rising prices. There are endemic and perhaps diverse reasons at the root of inflation. Cost-push inflation is a result of decreased aggregate supply as well as increased costs of production, itself a result of different factors. The increase in aggregate supply causing demand-pull inflation can be the result of many factors, including increases in government spending and depreciation of the local exchange rate. If an economy identifies what type of inflation is occurring (cost-push or demand-pull), then the economy may be better able to rectify (if necessary) rising prices and the loss of purchasing power.

Source : Reem Heakal on February 26, 2009
http://www.investopedia.com/articles/05/012005.asp

What Causes A Currency Crisis?

Since the early 1990s, there have been many cases of currency investors who have been caught off guard, which lead to runs on currencies and capital flight. What makes currency investors and international financiers respond and act like this? Do they evaluate the minutia of an economy, or do they go by gut instinct? In this article, we'll look at currency instability and uncover what really causes it.

What Is a Currency Crisis?
A currency crisis is brought on by a decline in the value of a country's currency. This decline in value negatively affects an economy by creating instabilities in exchange rates, meaning that one unit of the currency no longer buys as much as it used to in another. To simplify the matter, we can say that crises develop as an interaction between investor expectations and what those expectations cause to happen.

Government Policy, Central Banks and the Role of Investors
When faced with the prospect of a currency crisis, central bankers in a fixed exchange rate economy can try to maintain the current fixed exchange rate by eating into the country's foreign reserves, or letting the exchange rate fluctuate.

Why is tapping into foreign reserves a solution? When the market expects devaluation, downward pressure placed on the currency can really only be offset by an increase in the interest rate. In order to increase the rate, the central bank has to shrink the money supply, which in turn increases demand for the currency. The bank can do this by selling off foreign reserves to create a capital outflow. When the bank sells a portion of its foreign reserves, it receives payment in the form of the domestic currency, which it holds out of circulation as an asset.

Propping up the exchange rate cannot last forever, both in terms of a decline in foreign reserves as well as political and economic factors, such as rising unemployment. Devaluing the currency by increasing the fixed exchange rate results in domestic goods being cheaper than foreign goods, which boosts demand for workers and increases output. In the short run devaluation also increases interest rates, which must be offset by the central bank through an increase in the money supply and an increase in foreign reserves. As mentioned earlier, propping up a fixed exchange rate can eat through a country's reserves quickly, and devaluing the currency can add back reserves.

Unfortunately for banks, but fortunately for you, investors are well aware that a devaluation strategy can be used, and can build this into their expectations. If the market expects the central bank to devalue the currency, which would increase the exchange rate, the possibility of boosting foreign reserves through an increase in aggregate demand is not realized. Instead, the central bank must use its reserves to shrink the money supply, which increases the domestic interest rate.

Anatomy of a Crisis
If investors' confidence in the stability of an economy is eroded, then they will try to get their money out of the country. This is referred to as capital flight. Once investors have sold their domestic-currency denominated investments, they convert those investments into foreign currency. This causes the exchange rate to get even worse, resulting in a run on the currency, which can then make it nearly impossible for the country to finance its capital spending.

Predicting when a country will run into a currency crisis involves the analysis of a diverse and complex set of variables. There are a couple of common factors linking the more recent crises:

• The countries borrowed heavily (current account deficits)
• Currency values increased rapidly
• Uncertainty over the government's actions made investors jittery

Let's take a look at a few crises to see how they played out for investors:

Example 1: Latin American Crisis of 1994  On December 20, 1994, the Mexican peso was devalued. The Mexican economy had improved greatly since 1982, when it last experienced upheaval, and interest rates on Mexican securities were at positive levels. Several factors contributed to the subsequent crisis: Economic reforms from the late 1980s, which were designed to limit the country\'s oft-rampant inflation, began to crack as the economy weakened. The assassination of a Mexican presidential candidate in March of 1994 sparked fears of a currency sell off. The central bank was sitting on an estimated billion in foreign reserves, which were expected to keep the peso stable. In less than a year, the reserves were gone. The central bank began converting short-term debt, denominated in pesos, into dollar-denominated bonds. The conversion resulted in a decrease in foreign reserves and an increase in debt. A self-fulfilling crisis resulted when investors feared a default on debt by the government. When the government finally decided to devalue the currency in December of 1994, it made major mistakes. It did not devalue the currency by a large enough amount, which showed that while still following the pegging policy, it was unwilling to take the necessary painful steps. This led foreign investors to push the peso exchange rate drastically lower, which ultimately forced the government to increase domestic interest rates to nearly 80%. This took a major toll on the country\'s GDP, which also fell. The crisis was finally alleviated by an emergency loan from the United States.

Example 2: Asian Crisis of 1997 Southeast Asia was home to the "tiger" economies, and the Southeast Asian crisis. Foreign investment had poured in for years. Underdeveloped economies experience rapid rates of growth and high levels of exports. The rapid growth was attributed to capital investment projects, but the overall productivity did not meet expectations. While the exact cause of the crisis is disputed, Thailand was the first to run into trouble.  Much like Mexico, Thailand relied heavily on foreign debt, causing it to teeter on the brink of illiquidity. Primarily, real estate dominated investment was inefficiently managed. Huge current account deficits were maintained by the private sector, which increasingly relied on foreign investment to stay afloat. This exposed the country to a significant amount of foreign exchange risk. This risk came to a head when the United States increased domestic interest rates, which ultimately lowered the amount of foreign investment going into Southeast Asian economies. Suddenly, the current account deficits became a huge problem, and a financial contagion quickly developed. The Southeast Asian crisis stemmed from several key points: As fixed exchange rates became exceedingly difficult to maintain, many Southeast Asian currencies dropped in value. Southeast Asian economies saw a rapid increase in privately-held debt, which was bolstered in several countries by overinflated asset values. Defaults increased as foreign capital inflows dropped off. Foreign investment may have been at least partially speculative, and investors may not have been paying close enough attention to the risks involved.

Lessons Learned
There several key lessons from these crises:

• An economy can be initially solvent and still succumb to a crisis. Having a low amount of debt is not enough to keep policies functioning.
• Trade surpluses and low inflation rates can diminish the extent at which a crisis impacts an economy, but in case of financial contagion, speculation limits options in the short run.
• Governments will often be forced to provide liquidity to private banks, which can invest in short-term debt that will require near-term payments. If the government also invests in short-term debt, it can run through foreign reserves very quickly.
• Maintaining the fixed exchange rate does not make a central bank's policy work simply on face value. While announcing intentions to retain the peg can help, investors will ultimately look at the central bank's ability to maintain the policy. The central bank will have to devalue in a sufficient manner in order to be credible.

The Bottom Line
Growth in developing countries is generally positive for the global economy, but growth rates that are too rapid can create instability, and a higher chance of capital flight and runs on the domestic currency. Efficient central bank management can help, but predicting the route an economy will ultimately take is a tough journey to map out.

source : By Brent Radcliffe on July 09, 2013   

http://www.investopedia.com/articles/economics/08/currency-crises.asp