Introduction to Macroeconomics
ECON 1311
MONTRY POLICY in Saudi Arabia (Assignment 2)
Razan Alkhathlan
201000559
Rawaby Alkhathlan
200801012
Sec: 201
Dr. MAHMOOD HAMAD
Introduction:
Monetary policy is one of the ways in which the Government can influence the economy. In
Saudi Arabia, the Saudi Arabian Monetary Agency (SAMA) as an agent of the Government
carries out this task. Monetary policy must pay attention to fiscal policy. Very often monetary
policy is used to fine-tune the effects of fiscal policy and here is in my research I would like to
write about the implementation, General description of the SAMA, managements, functions,
banking system in Saudi Arabia, money function, exchange rates and factors does influence the
exchange rate, relationship between the dollar& Saudi riyal, inflation in Saudi Arabia.
Implementation:
The Implementation Model may be characterized as a short-to-medium term demand-oriented
annual econometric model built over an input-output framework. Its behavioral relationships are
centered on the private non-oil sector, reflecting economic consequences of fiscal or monetary
policy actions taken by the Government in pursuance of plan targets, as well as impulses from
the oil sector or from abroad. Although a main purpose of the model is to monitor the plan
implementation, it may be found useful at the plan preparatory stage as well. By utilizing the
preliminary indicators of the economic development available in the Kingdom, the model may
provide an updated picture - corresponding to.
General description of the SAMA, managements, functions:
The description of a general manager directs and coordinates the operations of a small business
or a department in a company. Medium-sized, small and large companies are divided into
production, sales, promotion, purchasing, and other departments, and a general manager is
typically in charge of each of these divisions. In a small company the general manager may be
responsible for all operations. General Managers usually report to the chief operating officer or
to a vice president. They may report to the chief executive officer.
Each company has its own corporate ladder. Some companies give the title of general manager to
those in charge of separate operating units. A department store chain might call the person in
charge of each store a general manager. Sometimes the person in charge of a subsidiary company
has that title. At some big, high-tech companies more than one general manager may be assigned
to the same division. Despite these differences, the functions of all general managers are
essentially the same.
Banking system in Saudi Arabia:
Standard & Poor’s Financial Services LLC (S&P) rated Saudi Arabia’s banking system as one of
the safest in the world and it is also very popular, moving the country’s Banking Industry
Country Risk Assessment up from Group 3 to Group 2. This puts Saudi Arabia in a group with
countries including Germany, France, Singapore, Norway, and Sweden and makes it the lowestrisk banking sector in the Middle East. Only two countries, Canada and Switzerland, are in
Group 1 with the highest rating. S&P cited Saudi Arabia’s sizable current account surpluses,
which support the government’s policies of modernizing infrastructure, promoting economic
diversification, and supporting private sector growth through vast spending plans. Saudi banks
also have sufficient lending practices and underwriting standards, as well as a history of
maintaining strong asset quality indicators. S&P also acknowledges the Saudi Arabian Monetary
Agency’s role in efficient bank monitoring and controlling credit growth.
Money functions:
According to the writer Farah fadil she says that, in a recent article in this journal Ali Darrat
estimated a money demand function for Saudi Arabia (1962/I-1981/IV) showing that domestic
money holdings were significantly influenced by external factors: foreign interest rates and
currency exchange rates. This comment is intended to clarify some basic misconceptions about
the scale variable he used in this function, which may affect the validity of his strong empirical
evidence.
Exchange rates and factors dose influence the Exchange rate:
Exchange rate plays a vital role in a country's level of trade, which is crucial to most every free
market economy in the world. For this reason, exchange rates are among the most watched
economic measures, analysis and manipulation of government. But exchange rate issue on a
smaller scale as well: they affect the real return of the investor's portfolio.
Exchange rate movements affect the nation's trade relations with other nations. A higher
currency makes a country's exports more expensive and imports cheaper in foreign markets; less
currency makes a country's exports cheaper and more expensive and imports in foreign markets.
And can be expected to rise in the exchange rate to lower the country's balance of trade, while
the decline in the exchange rate would increase it.
Relationship between the dollar & Saudiriyal:
Recent economic study identified 11 reasons to keep the Saudi riyal linked to the U.S. dollar.
Among these reasons cited by the study by researcher Saud Bin Hashim Julaidan specialized in
economic studies, that exchange rates currencies of most countries in the world in the past, in
one way or another linked to the dollar when it was a common fixed exchange systems before
the beginning of the seventies.
The study said that by taking a look at the historical development of Saudi riyal exchange rates
against the U.S. dollar, it seems that the Saudi Arabian Monetary Agency adopted a policy of
linking and install the Saudi riyal exchange rate to the dollar. Did not change the riyal's exchange
rate against the dollar over the past 50 years only a limited times and low rates and at longer
intervals. The relationship between the two currencies during that period almost stable. Proven
world countries, including Saudi exchange rates of their currencies against the dollar. Even after
the U.S. currency's disengagement, continued large number of countries around the world,
including the UK in linking their exchange rates in U.S. dollars.
Inflation in Saudi Arabia:
The inflation rate in Saudi Arabia at 3.90 percent in November of 2012. According to reports the
rate of inflation in Saudi Arabia by the Saudi Arabian Monetary Agency. Historically, from 2003
until 2012, the average inflation rate Saudi Arabia 3.81% to an all time high of 11.08 percent in
July of 2008 and a record low of 0 percent in September 2004. In Saudi Arabia, and measures the
rate of inflation raised a widespread or lower prices that consumers pay for a standard basket of
goods. This page includes a chart with historical data for inflation values Saudi Arabia.
Conclusion:
In this assignment we talked about monetary policy in Saudi Arabia in general and dealt with
some of the topics in particular are the implementation, general description of the SAMA,
managements, functions, banking system in Saudi Arabia, money function, exchange rates and
factors does influence the exchange rate, relationship between the dollar& Saudi riyal, inflation
in Saudi Arabia. SAMA’s monetary policy remains independent of its role as a debt manager for
the government. Monetary conditions are set in response to overall macroeconomic
considerations.
Resources:
1- http://www.bis.org/publ/plcy05j.pdf
2- http://www.ssb.no/histstat/doc/doc_199613.pdf
3- Read more: General Manager Job Description, Career as a General Manager, Salary,
Employment - Definition and Nature of the Work, Education and Training Requirements,
Getting the Job StateUniversity.comhttp://careers.stateuniversity.com/pages/212/GeneralManager.html#ixzz2FOt3jN3d
4- http://www.us-sabc.org/custom/news/details.cfm?id=1158#.UNB9nXhpvR0
5- Farah Fadil, (1985) "Money Demand in Saudi Arabia: An Exchange of Views: GNP as a
Variable for the Demand for Money in Small Oil Economies: A Comment", Journal of
Economic Studies, Vol. 12 Iss: 5, pp.62 – 64
http://www.emeraldinsight.com/journals.htm?articleid=1709378
6- http://www.tadawul.net/forum/showthread.php?t=805
7- http://www.tradingeconomics.com/saudi-arabia/inflation-cpi