Description
While Saudi Arabia seeks to diversify its economy, the Saudi economy is dominated by the petroleum sector. In addition, the Saudi Arabian Riyal (SAR) is pegged to the U.S. Dollar.
In a critical essay, discuss the advantages and disadvantages of the pegged exchange rate. Indicate the main considerations Saudi Arabia faces from a currency perspective (e.g., currency values, interest rates, inflation, and trade issues) that ensue given two scenarios:
The first scenario is a dramatically declining world oil price.
The second scenario is a dramatically increasing world oil price.
Explanation & Answer
Please view explanation and answer below.
1
Exchange Rate Determination
Student’s Name
University
Date
2
Exchange Rate Determination
South Arabia has a grown economy that is among the top twenty world economies. It is
the largest in terms of economy in the Middle East and Arab. It is the primary source of
petroleum globally, and its economy highly depends on oil, although the government aims to
reduce the dependence in the vision 2030 (Alkareif et al., 2017). However, the Saudi Arabian
Riyal is pegged to the US Dollar, thus exposing it to the advantages and disadvantages of a
pegged exchange rate. The country has a fixed exchange rate system.
Some of the disadvantages encountered by the country as a result of pegging their
currency to the US Dollar include increased foreign influence, hypothetical attacks, and complex
spontaneous adjustments. ...
Review
Review
