Another most important gain from the new currency would be vast profits that may result from selling the currency to other countries and making them to reserve it for future transactions with GCC states. However, this may result to the loss to the national central banks when they stop producing their local currencies along with the loss of currency redemption from the existing market. The third benefit to the Arab Gulf States would derive from the pooling. The GCC countries can bargain and control the world economy and manage their trade policies when they become a single pool.
This will reduce the wastage of resources and effort during the trade and transactions. However, the existing currencies like US dollar, euro and Asian currencies like Chinese Yuan, the Japanese yen, Indian Rupee can become a major competition to the new single Gulf currency. In order to sustain in the market the new currency should have a good alliance among themselves as well as with other trading countries. ? Stock markets are the back bones for the financial status of the countries economy. The trade occurred in the exchange represents the national companies worth.
The effective trading in the stock exchange and the financial performance of the country are interrelated to each other. Saudi Stock Market is recently picked up the boom and has become a recognized market for investment from the last five years, though the first stock company was established about 70 years ago. Nearly 50 companies joined the stock exchange at the beginning in 1985 and Became 1000 in 1995, but then reduced to be around 90 by the end of 2000.
By 2007, the total publicly held companies consist of 88 firms, spreading across the 8 sectors – banking (10), cement (8), service (23), manufacturing (34), electricity (1), insurance (1), telecom (2), and agricultural (9). Saudi stock market experienced a severe collapse in 2006, since then the index lost 65% from its highest level. In 1985, the stock price index started with 1000 points and remained same for 10 years and escalated to 1500 in 1995, reached to 3000 in 2002. As many Saudi companies are going public the Saudi stock market is emerging as largest emerging market in the world.
As the oil earnings increase, people started investing in to the stocks which was indicated by the over half of our population being invested in the stock market. This represents the overall Saudi economy. A sudden boom appeared at the beginning of the year 2003, to reach a peak of 20600 points by the end of February 2006. Then before May 2006 it took reverse direction and traded at 10000 point for about five months. Then it followed a down trend to reach 7000 by the end of 2006 and slightly up by 2007 with 8000. The Saudi market was fluctuated many times due to the poor acknowledgement of right time to buy and sell the shares.
The sensible market performance of Saudi stocks were given a huge hype by media when the Saudi Telecom company was converted into a joint stock company. However, during the following two years 2004 and 2005, there existed a demand side increase for the shares, leading to the high share prices and then the boom collapsed. The responsibility of Saudi stock market crisis is shared by three parties: government (shares agency), media, and traders themselves. This slow down of Saudi market has effected the U. S stock market where investors tried to withdraw the shares from the Saudi stocks.
Also Saudi stock market, being the largest of GCC stock markets in terms of market capitalization, lead other GCC stock market along with its trend. When the slow down of the trend line continued it aroused fear in the markets reflected investors’ concerns. One of the best example for such impact of Stock market fluctuations is AIG (American International Group Inc. ) When the investors began to withdraw the shares from AIG it became a concern to the U. S Walstreet and cautioned the further investors. Even though Government assured the confidence about AIG, the company stocks still went down.
The market could not believe the support announced by the Federal Reserve for $85 billion loan to AIG in exchange for a nearly 80 percent stake in the company. Market believes that AIG which has a diversified portfolio may follow the Lehman’s bankruptcy. Recommendations Though troubled during some instances the early beginning of U. S. and Saudi relations are still strong in terms of military , political and economic areas. The oil price fluctuations altered the world economies at several times, but the Saudi-U. S trade agreements have compensated them to a certain extent.
However, the increased demand for the U. S Energy consumption rates allowed the dominance of other oil exporters to U. S than Saudi in the recent years. The Saudi is dependent on Dollar value and it best performance. The Riyal Value is pegging is maintaining the economic stability of Saudi. However, the low performance of Saudi stock market is a warning to stop any radical moves that a country can take. In this context, it is observed that the sudden sift of currency changes may threaten the further trade relations.
So it is observed that the Saudi currency binding with U. S currency has its best interest than any other alternative.
AIG: The Success of Failure, 1 October 2003 < http://seekingalpha. com/article/83660- aig-the-success-of-failure> Big Oil: Saudis Must be Scarier than Canadians, 1 October 2003 < http://eurota. blogspot. com/search? q=Since+1991+gross+daily+US+oil+imports+ have+gone+from+7. 6m+barrels+to+13. 1m+in+2004%3A> Christopher M. Blanchard, Saudi Arabia: Background and U. S. Relations. 1 October 2003 https://www.fxcm.com/