Factors Affecting Foreign Exchange Rate
Foreign exchange rate is always dynamic and it affects every sector of life. The economic health of a country is influenced by its current exchange rate. Consequently, it is important to understand some of the factors that affect foreign exchange rate.
When the interest rate of a country rises high or falls low than the rate of another country the currency of the country with low rate is sold while that of the country with a higher rate is bought for purposes of achieving high returns. Given the demand of the currency with a high rate, its value will increase against that of other currencies. The world today had become globalized and as such, the market trend has shifted towards one of free capital mobility and foreign exchange restriction elimination.
Differential in inflation
As a rule, a country that has a consistent low inflation rate will exhibit an increasing currency value since its purchasing power will rise relatively to that of other countries. Towards the end of the twentieth century, some of the countries that had low inflation were Switzerland, Germany and Japan while in countries like United States and Canada, it came later. Countries that have a high inflation witness depreciation in currency compared to the currency of trading partners. Usually, this will be accompanied by high interest rates.
Expectations of economic growth
In order to meet the need of an ever growing population, the economy must expand. However, in cases where the growth occurs at a very high rate, wage advances are outpaced by price increased such that the buyer power of consumers decreases despite the fact they earn averagely. Majority of countries target a 2% economic growth per year. With high growth comes high inflation and consequently, the central banks raise their interest rates in order to increase the borrowing cost and slow down spending in an economy. Changes in interest rates can signal currency rate changes.
Actions of Central Bank
With majority of major economies having an already low interest rate, government officials and the Central Bank have resorted to others measures which are not used often to intervene in the markets and influence the rate of economic growth. For instance, quantitative easing is used to increase the supply of money within an economy and this involves purchasing of government bonds as well as other assets from financial institutions to give them additional liquidity
Other factors that also affect foreign exchange rate include employment outlook, political stability, public debts, and terms of trade as well as economic performance.
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Equilibrium Exchange Rate
Equilibrium exchange rate refers the rate where currency supply meets demand of that same currency. Since foreign exchange rate is affected by several factors, equilibrium exchange rate is also influenced by factors of demand and supply. Therefore, equilibrium is achieved when the demand of a currency is equal to supply. Consequently, this rate equals to the PPP (purchasing power parity) of the currency where all markets are efficient and goods are traded.
This means that across all countries, the price levels need to be observed. The equilibrium rate is talked about as something that is different from what the current market rate is and this often means 2 things. One is that the real equilibrium exchange rate will at some point in the future be different from the rate observed today. Two, the policy towards nominal exchange rate facilitates in some way, adjustment towards the real future exchange rate. As such, the question on whether there is any sense in calculating equilibrium exchange rate on the basis of policy brings about two sub-questions which include whether there are analyzable and predictable real exchange rate shifts and if such shifts can be facilitated by the policy on nominal exchange rate.
There are a couple of factors that affect the shift in equilibrium exchange rate as they include:
The agreement that real events have the ability to change equilibrium exchange rate is a universal one. The only source of dispute is how frequent such shocks are as well as how large. One possible shift source in equilibrium exchange rate is secular trends presence which is as a result of technological changes and product mix differences among others. Another likely source that affects equilibrium rate is commodity price shock. For G-5 countries that are exporters, such shocks don’t have a large impact as is the case with primary exporters.
This is another controversial cause for shifts in equilibrium rate especially in capital flows noted international. Take for example a country that is a temporary recipient of capital flows. This could be as a result of an investment boom which is generated by resource discoveries or technological change attributed to tax law changes or bulge in deficits. Regardless of the source, capital inflows will be spent at a domestic level and this will raise the demand for nontrade goods that are domestically produced and in some cases, it can also raise the price of a country’s goods in the world markets.
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Pros and Cons of a Pegged Exchange Rate
A pegged exchange rate, also known as fixed exchange rate refers to an exchange rate whereby the central bank or the government pins its official exchange rate to the currency of another country (s). Sometimes, the official currency exchange rate can also be tied to the price of gold. The purpose for undertaking such a measure is to enable the country to maintain the value of its currency within a narrowly inclined band.
There are several benefits that a country can achieve with a pegged exchange rate. Likewise, there are also demerits to taking such a step. One of the arguments in favor of a pegged exchange rate is that it ensures a reduced risk when it comes to global trade. When a particular country maintains a fixed exchange rate, buyers and sellers are able to easily come to an agreement on the price to be applied for commodities. After the contracts are sealed, there will be no risks resulting from changes in exchange rates, thus, enhancing investment.
A pegged exchange rate is also an ideal avenue to be pursued towards instilling discipline in the management of economies. A fixed exchange rate gives governments the authority of not following inflationary policies. As a result of this, there will be reduced risks when it comes to problems arising from balance of payments and unemployment. Thus, the economy will become competitive. A pegged exchange rate is an ideal incentive that can enable governments to keep inflation on the low.
On the other side of the coin, a pegged exchange rate creates an environment where there is dire need for large foreign exchange reserves. A government that has implemented the policy of a fixed exchange rate requires huge foreign currency reserves at its disposal in order to maintain that rate. The lower side of this is that such kinds of reserves come with opportunity costs that can be quite expensive to a country.
Another con of a pegged exchange rate is that it is not flexible and creates a condition for limitations. With a fixed exchange rate, it becomes challenging to make response to temporary shocks. This is because there is always no chance for devaluation when the exchange rate is fixed.
A pegged exchange rate can also lead to imbalances in current account. This is because with an exchange rate that is overvalued, there are higher chances for deficits in the current account. Another demerit of an exchange rate that is fixed is that it is usually not easy to determine the right time for a country to join. If a country implements the policy of a pegged exchange rate at a high, its exports will not be competitive. On the other hand, inflation can be experienced when the rate is too low.
Owing to the pros and cons of a fixed exchange rate that are outlined above, it is clear why most economies prefer to implement it. A fixed exchange rate comes with numerous comparative advantages for trade that can help a country in shielding its economic interests.
Effects of Fixed Exchange Rates on Monetary Policy
Many researchers have been busy conducting studies on the impacts that fixed exchange rates can have on monetary policy. The studies are still on-going; however, there are a few revelations that have been made on how pegged exchange rates can impact monetary policy. One thing to be noted is that fixing the rate of exchange does not contribute to the total loss of flexibility with regards to monetary policy. Quite a number of countries would still have monetary freedom with fixed exchange rates but with certain limitations.
With a fixed exchange rate, a country’s monetary policy is limited to a certain parameter. A pegged exchange rate limits a government to making decisions based on the activities of the base country. This means that even if the fixed economy is faced with a problem like inflation, it cannot find solace by increasing supply of money into the market. The exchange rate will still remain the same as long as there is no agreement between the fixed economies to effect changes. Thus, even the current account balances of every pegged economy will remain the same until it opts out or comes into agreement with its partners to change the rates.
A country that operates on a fixed exchange rate is not autonomous; this means that it cannot be able to pursue its domestic objectives through monetary policy. It often occurs that most countries that are operating on fixed exchange rates push much of the autonomy of their monetary policies to the base countries or those nations to whom they have tied their currencies to. Fixed exchange rate economies substantially align their monetary policies to those of their base counterparts, thus limiting their flexibility.
Many business analysts have argued that monetary policy is ineffective under pegged exchange rates. The reason for this is because with a fixed exchange rate, it is not within the power of the government or even the central bank to determine the value of its currency. The fixed exchange rate reigns over monetary policy in that even if a country decides to either expand or contract its monetary policy, the fixed exchange rate will not change to the advantage of that country. A fixed exchange rate takes away the ability of a government or the central bank to influence the interest rates, exchange rates and even the Gross National Product.
In the implementation of a fixed exchange rate, there is always an initial target exchange rate that is set. This rate will be allowed to undergo fluctuation within a given range that is close to that target. Economies that are operating with the fixed exchange rate will have to keep their rates revolving around this target. However, modifications can be conducted on the exchange rate after some time depending on the performance of economies. Thus, the effects of a fixed exchange rate on monetary policy can only be achieved when these modifications are done.
New Product Adoption Process Model
How does a company introduce a new product in the market? How will consumers adopt the product? These are important questions for marketers whenever introducing a new product. Essentially, they need to identify classes, in which their adopters fall. This adoption process is also called the Diffusion of Innovation. It is not a new concept in business as it has been in existence for more than forty years. In essence, it gives a description of how consumers behave when they buy new products in the market. In this paper, we discuss the five categories in which consumers fall when adopting a new product.
Innovators: This usually denotes a small portion of the market, which fully supports the adoption of the new products. These people do not care about the price and are always enthusiastic about trying new products. However, research shows that innovators do not make loyal consumers because they keep on shifting their loyalty and trying new products elsewhere in the market. They always have the urge to be the first to own the products before average consumers can acquire it. Most peers do not take innovators seriously in their decisions.
The second category are early adopters: The membership of this group is higher than that of innovators. They are more practical about what they want even though they share the same enthusiasm as adopters. It is important to note that early adopters act as opinion leaders and may influence other consumers in the market. They are the first to hold on to the new products and influence people around them like family members and friends.
Early Majority: This marks massive entry and acceptance in the market. They account to about 30% of the entire market. Though these consumers have a taste for new products, they are not in a hurry to make a purchase until the early adopters influence them with positive testimonies about the new entrants in the market. Early majority mean a lot to the company because they result into profit since they are in large numbers. However, many new products die because they fail to reach this stage of massive acceptance from consumers.
Late Majority: Their numbers are almost equal to early majorities. They also watch from a distance to see the benefits of the new products in the market before they cause humongous surge in consumption. Manufacturers are likely to realize pinnacle profits whenever a product gets to this level of adoption. Though they consume in bulk, they are slow to accept new products.
The last step of adoption consists of laggards. These consumers resort to the new product only when they do not have any choice. It is worth noting that this group is sometimes large enough even though marketers hardly give it attention because of its reluctance to adopt the new product. This category also comprises of consumers who never adopt the new product at all because of personal reasons. Their impact is not that significant. It is important to note that the success of the adoption process largely depends on the impact of marketers, as consumers seek information about new products.
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Buyer Decision Process for New Products
Whether conscious or unconscious buying is a process, which consumers go through when acquiring products. The process has different stages that allow the buyer to make the final decision. It is important to note that the length of the process largely depends on the nature of the product in question. In other words, different goods may have unique stages for consumers. The process is much shorter for consumables like foodstuffs but it could be complex when making high involvement purchases. Moreover, the decision to buy a product depends on several factors. For example, the people around you may have impact on your busying behavior. When the cost of the item is high, you are likely to involve many people in making a buying decision as compared to when you want to acquire something cheap.
When buying a new a product you also go through the buying process. Potential buyers often see new products as unfamiliar. The process of buying new products is also called production adoption process. The process allows customers to accept the new product in the market after undergoing a series of steps. This process mainly focuses on how buyers get to know about a new product and make a decision to acquire it. Importantly, the decision by consumers to choose a new product is always psychological. It takes place in the following steps:
The first step of adoption is awareness. Here, the consumer is aware of the new product but does not have sufficient information about it. This is crucial because they cannot make a buying decision of the product if they do not know its existence. Consumers learn about new products through various channels of communication. They include but not limited to advertising, word of mouth and in-store visibility.
The second step is interest. A consumer has interest in a new product when they take a step of seeking more information about it. If this information exists, the consumer will start collecting it from various sources.
The third step is evaluation. This is where the consumer makes decision on whether trying the new product makes sense or not. However, this stage only takes place if the consumer has gathered information about the new product for analysis. They base their evaluation on the quality of the products, the advantages they have over existing ones in the market and the expiry date. From this, one goes ahead to make a buying decision.
Trial: Here, the consumer takes the risk to acquire the new product to prove its perceived value. After this, the consumer may choose to purchase the new product in small qualities for a start. The last stage of a consumer buying a new product is adoption. At this point, the consumer decides to buy the product regularly. However, this stage depends on trial results. If the consumer gets appealing and satisfactory outcomes, he or she may consider the product even for future purchases. If the results during trial are not encouraging, they may drop the idea of adopting the new product for future use. It is the role of the marketing team of the manufacturer to help consumers transit through the five stages before they make a final decision. Packaging of the information for customers equally matters.
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5-Step Problem Solving Process
Life is a paradox of solving problems. Whether in business or politics, people confront varying challenges daily? Thus, there is need to have a straightforward way of solving such issues whenever they arise. A good approach in problem solving ensures that you identify the cause of the problem and if your preferred solutions are the best. When solving a problem, the solutions should have minimal negative solutions at all times.
Identify the problem: You cannot solve a problem that does not exist. As such, you should define the problem with clarity. For better understanding, it is paramount for you to look at the problem from different angles. For example, as the manager, visualize what you CEO, customers, and close associates would consider a problem. This will offer you a broad spectrum of solutions to the problem at hand. Another person’s perspective could be the best alternative in reaching an acceptable and realistic solution. At this level, it is necessary to look at causality. What is the root cause of the problem? By this, you will be able to define the problem with a lot of clarity.
Recognize issues: The second step of problem solving is indentifying the real issues surrounding the problem. Here, you get into the nitty-gritty of the problem by breaking the issues into subcomponents, which you can manage with a lot of ease. By breaking down a big issue into smaller components, you are able to identify its root cause with precision.
Generate and prioritize hypothesis: After identifying the issues to address, start thinking about how to solve them. It is unadvisable to start assigning solutions to each of the issues but rather identify various alternatives, which appear applicable and feasible. Such possible solutions transform into hypothesis, which the manager has to prioritize, do an analysis and carry out an evaluation process. After having the hypothesis, do no not disapprove every hypothesis. Instead, work with the ones that offer the best solutions, by weighing pros against cons. Divert your energies to most meaningful ideas and pursue them.
Analysis: This stage focuses on approving or disapproving your hypothesis outlined in step 3 of problem solving. At this stage, you determine the potential of every option to narrow down to the most likeable solution. It is worth noting that a great idea might not manifest at this stage but this does not mean that your alternatives are obsolete. Analysis the entire process will not guarantee you the best outcome. Of great significance is to conduct the right analysis for the process.
Advance your response: After a successful analysis, you need to convince the world that your recommendation works. To do this, change your hypothesis into recommendations that can be put into practice as part of problem solving. No one is interested in humongous analysis. Simply focus on proving your case using facts you may have gathered in previous stages of problem solving. Above all, the recommendations should appear in an appealing storyline to the audience. Where possible, help your audience to digest the analysis by defining the problem, explain the need to solve it and prove your approach.
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5-Step Decision-Making Process
Mastering good-decision making is important in business because everything is about decisions. Organizations make profits or losses because of their respective decision. Thus, one has to learn the best method that offers the best solutions. It is worthy noting that stepwise decision-making is not inherent but people acquire it through experience. However, it is also true that experience can breed bad results, especially when people dwell on bad habits that hamper business growth. For this reason, it is important to follow tested and approved method of decision-making, which has give steps as discussed below.
Identify the goal: The first step is to identify the goal. Regardless of the decision you make, you cannot avoid your ultimate goal. In this context, your goal refers to knowing the exact problem that requires a solution. Besides identifying the problem, it is equally necessary to know if you need to address the problem at hand. At this point, you figure out what matters to you in order to reach a final solution. When you appreciate why you intend to take an action, you defend the decision to the end and defend it throughout.
Gather information: The second step is gathering information to way the available options. For excellent decision-making, you need information on the problem at hand. Through this, you establish what you need to do to address the problem and helps you generate ideas for viable solutions. When gathering information, consider working with a range of options and possible alternatives even those that may appear unrealistic in the beginning. Importantly, seek information from reliable sources like experts in a field or from trustworthy friends. The best solution comes from numerous options on the table.
Consequences: Thirdly, consider the effects of the decision. From this, you visualize how the decision will affect you and people around you. Ask yourself probable outcomes of the decision you are about to make. Does it affect you now? How is it likely to affect you in future? The main advantage of this stage is that it helps you weight the merits against demerits of the decision. Moreover, it makes you feel comfortable because it allows you to analyze every possible solution critically.
Make the decision: The fourth step is making the decision. Having identified the purpose of your decision, gathered information and weighed different options, you are good to execute the decision. It raises the level of adrenaline, as one has to believe in his/her instincts. Understanding the feeling at this level is vital even though you may be indecisive about the move. To feel better, ask yourself if the decision works well for you and if you can still adopt it in future when handling related issues that require a similar response.
Evaluation: The fifth step is evaluating your decision. Implementing a decision alone is not enough. You need to review the steps you went through. This is step requires the same measure of attention as the first step. It further allows you to improve your future decision-making skills since you are able to identify the mishaps in your methodology. With this knowledge, you can make changes and adopt better decision-making processes.
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Stock Repurchase Agreement
A stock repurchase agreement is used for purposes of buying stocks back from trader/stockholder. This type of agreement can also be used by an individual who owns stock in a particular company and they are interested in selling it back. Before making an agreement on a stock repurchase agreement, it is advisable to ensure the terms are clearly outlined first. Getting this type of agreement signed aids in moving the process forward.
A stock repurchase agreement can be used when:
- A company wants to repurchase shares from one of its shareholders
- When one is a stockholder interested in re-selling their stock back to the company.
There are instances when departing stockholders are required to sell and/or the remaining stockholders might be required to purchase stock from the departing stockholders. The resulting effects of this arrangement can include any of the following:
- Liquidity might be provided to the stockholder departing according to the price per share
- It makes it possible for the surviving to retain ownership 100 percent
- Prevents undesirables from becoming part of the stockholders.
There are several reasons as to why a trader would prefer to resell their stock to a corporation. For instance, it could be a lucrative time for them to re-sell or they could be interested in getting out of that specific investment. Other instances, they might be partners in the corporation interested in selling their stock to a fellow partner in the corporation. Note that there are instances when the stock repurchase agreement is signed by a trader who wants to get their stock back. Whatever the reason might be, it is essential to have a clear understanding of how the stock repurchase agreement works. This not only makes it easy to acquire the stock back or sell it but also ensures all the terms are clearly clarified in the form of writing.
If the corporation is repurchasing the stock, it should state clearly in the agreement the amount it is purchasing it at as well what the total purchase price is going to be. In addition to this, the representations and warranties should be clearly outlined in the agreement. Ideally, this will include the power and authority which states the stakeholder has the authority and power to deliver on the agreement. Also, the enforceability and validity of the stock purchase agreement should be clearly laid out.
It is important to note this type of agreement is not only valid and legal but binding as well. It clearly outlines the obligations of the stockholder in accordance to the terms stated in the agreement.
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Reverse Repurchase Agreement
Reverse repurchase agreement refers to a type of agreement on purchase of securities upon the agreement to resell them at a high price at a future date. For the trader selling and agreeing they will purchase it in the near future, it is known as a repo while for the party buying the securities and making the agreement to sell in future, it is known as reverse repurchase agreement.
Repos are known as money-market instruments and they are used for purposes of raising short term capital. This is often a practice in which a financial institution or a bank purchases securities or other assets with the knowledge it will resell the asset or securities to that same seller. Financial institutions and investors agree to a reverse purchase agreement for purposes of raising short term capital. In actual sense, repos are the equivalent of short term loans with assets and securities serving as the collateral. Reverse repurchase agreement is not different from a repurchase agreement the only difference is that it is the buyer’s perspective rather than that of the seller. Consequently it is also known as a reverse or matched sale transaction.
For instance if A wants to sell securities to an investment firm B, then the firm should have cash it is ready to use in order to get into a reverse repurchase agreement with A. The management firm operates by the belief the price of the stock will rise before it is repurchased. If this happens, then the company selling the stock will return a higher price to company B than what was initially paid. As a result, the management firm makes a profit. However, it is ideal to note this only happens as long as the stock remains high and does not fall.
A reverse repurchase agreement can also face challenges. Key among them is that of properly matching 2 parties. This type of agreement is usually large requiring the potential investor to have immediate capital in huge amounts. As such, the investor requesting for reverse repurchase usually tends to be a group of investors like a private equity group or management firm rather than individuals.
Once the parties are matched, both get exposed to certain risks. For those repurchasing securities they are exposed to risks that are twofold. For starters, there is the possibility they will repurchase those shares at a high price compared to what they sold them at. Secondly, there is the possibility they might not be able to raise the cash needed to repurchase the securities. When this happens, it means that the investors have the right to retain the collateral which is in this case refers to the securities bought.
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Definition of parliamentary sovereignty
Parliamentary sovereignty is a constitutional law concept in which the legislative body governing a country is given absolute supremacy over all other governmental institutions. This concept is also referred to as parliamentary or legislative supremacy and it basically gives the parliament supremacy over all other bodies in the land including the judicial body and the executive body governing the land. There are a few countries which have sovereign parliaments and these include:
- The United Kingdom
- Papua New Guinea
- New Zealand
- Solomon Islands
Parliamentary supremacy gives the parliament the authority to not only make laws that govern the country but also amend some of the laws that it sees fit. Parliament is therefore not bound by any written law of the land and hence can act as it deems necessary. This concept differs from the doctrines of separation of powers which is practiced in many countries.
Principles if parliamentary sovereignty
- The parliament can make new laws. The parliament is in charge of making new laws during its tenure. These laws can be based on arising issues or precedents that have been practiced over time.
- The parliament can amend existing laws and practices. The parliament has supreme powers to change the laws that exist including decisions made by the courts of the land. The parliament can also reverse practices that have been considered as law in the land as it deems necessary.
- The parliament is not bound by its predecessors. Under the parliamentary supremacy, a new parliament is given fresh mandate and cannot be bound by what previous governments before have done. This therefore absolves new parliaments of any wrongs made by previous parliaments.
- The parliament is above all other governing bodies. Parliamentary sovereignty gives the parliament supremacy over the judicial and executive bodies. In fact, the parliament cannot be kept in check by either body. The parliament also has the mandate of reviewing the decisions made by the executive and judicial bodies.
Advantages of parliamentary sovereignty
Parliamentary sovereignty has some advantages. Most of the countries elect the leaders into the parliament and it is thus assumed that the leaders will represent the voice of the people. The fact that parliament can come up with new laws that fit contemporary situations makes parliamentary sovereignty advantageous for countries. This concept can help governments to get rid of obsolete laws and make new legislations that are more contemporary and suitable.
Disadvantages of parliamentary sovereignty
The parliamentary sovereignty has often been criticized for giving parliaments too much power. The fact that these parliaments have nobody to keep them in check leaves plenty of room for arbitrary decisions and abuse of power. There are also worries over the fact that parliamentary sovereignty gives the parliamentarians authority over crucial bodies such as the judicial body. This can lead to corruption and injustice within the judicial body.
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Commonwealth of Australia Constitution Act 1901
Definition of a constitution
A constitution is a set of laws that govern a country. Constitutions can be either written down or passed on as practiced norms. Written down constitutions are also referred to as codified constitutions while the unwritten constitutions are called uncodified constitutions.
Different countries have different constitutions depending on their laws and needs. While most countries have codified constitutions, there are a few that have unwritten or uncodified constitutions. There are also some countries that use both written and unwritten constitutions. Australia is one of the few countries that have both written and unwritten laws.
Background information on the Australian Constitution
The Australian constitution was negotiated during the 19th century. The British which had imperial powers over Australia during that time wanted a federal government. There was indeed mutual recognition for the need of cooperation between the British and Australians. While the Australian government had not defined this cooperation, British government expressly wanted a federal government. However, this was opposed by the locals because there was a general feeling that the bigger states such as New South Wales and Victoria would dominate the other smaller states.
In addition to this, the American Civil War had occurred during this era and federalism was viewed with great skepticism. Nevertheless, during the 1880s, the British noticed a huge presence of Germans and French in the pacific parts of Australia. This put a lot of pressure on the British and expedited their decision to cooperate with Australia.
In 1889, British finally established the Federal Council of Australasia which was a body that could facilitate inter-colonial cooperation. Even though this body could legislate over many matters, it neither had a permanent secretariat nor source of income. Australia and Britain begun strong negotiations over this matter and this was mainly done through conferences.
Eventually in 1891, the two parties decided to come up with a draft constitution that would legitimize federal governance. This draft constitution was passed through a referendum as the parties felt the idea would be made more popular if passed through majority vote. By the end of 1891, the draft constitution was tabled to the leaders of the colonial states.
Between 1895 and 1898, the parties held many meetings over the draft constitution. During this period there were amendments to this document and finally, another electoral decision was carried out. The western part of Australia did not engage in this exercise. In 1900, the Commonwealth of Australia Constitution act was passed into law. This later came into force in 1901. Ultimately, the Western part of Australia accepted to become part of the constitutional process and federal governance was established in the whole of Australia.
The current Australian Constitution
Australia in the recent times has made amendments to the constitution. One major amendment that was made in 1986 was the removal of the clause that gave Britain the mandate to change the constitution of Australia. The changes to the constitution can thus solely be carried out by the government and people of Australia.
Parliamentary Sovereignty in the UK
Definition of parliamentary sovereignty
Parliamentary sovereignty is a concept of governance in which the parliament of a country is bestowed with complete authority over all legislative matters in the country. This concept is practiced in a few countries across the world and has been widely contested in debates concerning governance issues. Basically, parliamentary sovereignty assumes that since the parliament is elected into power by the people, the views and practices of the parliament are a true representation of the people hence giving this body full authority to make, amend and even abolish laws.
History of parliamentary sovereignty in the UK
The United Kingdom is one of the countries that upholds parliamentary sovereignty. This practice in the UK dates back to the 14th century when there was struggle between the royal rule and parliamentary rule. However this issue was settled once and for all in 1611 when the Chief Justice ruled that the parliament had the sole legislative authority in the country. Ever since this rule was initiated, the UK has been practicing parliamentary sovereignty.
Parliamentary sovereignty in the UK is governed by three main principles. These principles also map out the functions and mandate of the parliament and they include:
- Formation of new legislations. The parliament of the UK is charged with the responsibility of forming all new laws. The parliament basically looks at what currently affects the country and makes laws that are relevant.
- Repealing of decisions. The parliament is also in charge of repealing any decisions that have been made by the executive or judicial bodies in the country.
- Amending laws. Previous laws that are no longer applicable can also be changed by the parliament of the UK.
Parliamentary sovereignty in the UK gives the parliament authority over every other body in the country including the judicial bodies such as courts in the country as well as the executive body. In addition to this, the parliament is absolved from all previous parliamentary decisions that have been made by its predecessors. The parliament can thus change such decisions if it deems this necessary.
Advantages and disadvantages of parliamentary sovereignty in the UK
Even though parliamentary sovereignty in the UK has been a hugely contested issue it has both advantages and disadvantages. Some of the advantages of having a parliament that is above all other legislative bodies in the UK include:
- Ease of changing laws that are retrogressive because each parliament has its own independent authority and discretion to form, repeal and amend laws.
- It makes it easy to govern the country because the parliament is the ultimate body to consult hence limiting bureaucracies.
Despite these advantages, parliamentary sovereignty can give room for abuse by current parliaments because of the large amounts of power given to the parliamentary body. Since parliament holds supreme authority, there is little check and balance over parliamentary decisions.
Developments affecting parliamentary sovereignty in the UK
Over the years, the parliament of the UK has been passing laws that have reduced the powers that parliament had and this is seen as a dilution to the concept of parliamentary sovereignty in the UK. Some of the decisions passed include:
- The passing of the Human Rights Act in 1998
- Devolution of power to the Welsh Assembly and Scottish Parliament
- The formation of the Supreme Court of the UK in 2009
- Joining of the European Union
These have devolved the powers of the parliament in the UK.
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Uncodified constitution is a form of constitution where fundamental government rules take precedent, usage and customs form as well a range legal instruments and statutes. The constitution is understood through the judiciary, legal experts and government committees reading commentary. In this type of constitution system, all elements are recognized by government legislators, bureaucracy and courts as binding upon government limits its powers. Such framework is also known as “unwritten constitution” though this is not 100% accurate. This is because uncodified constitution elements are written down in various official documents but not codified in one single document.
There are several advantages associated with uncodified constitution such as adaptability, resilience as well as adaptability. A new situation or condition of government for instance can be solved by passing legislation or precedent. No unique procedures are required in order to make constitutional law and it is not essentially superior to other existing legislation. Countries with this form of constitution lack a particular moment where its government’s principles were decided deliberately. Rather, the principles evolve according to the social and political forces arising throughout history.
The major disadvantage of an uncodified constitution is the fact controversies might arise as a result of varying understandings of the customs and usages forming the basic provisions of the constitution.
Examples of states with a codified constitution
Some of the states with this type of constitution are as highlighted below:
- New Zealand
- UK-The country does not have any defining document that can be referred to as ‘the constitution’. The political system in UK evolved with time and was not changed by an event like a revolution therefore it is continuously defined by decisions of Law courts and parliament.
- Saudi Arabia-The only source that is quoted to provide basic law is the Quran.
While in Canada there is a constitution act, important aspects of the country’s constitutional system still remain uncodified. The constitution preamble states the constitution should be ‘similar in principle to that of the UK’ which is not codified. This is applicable at the provinces and federal level though they both have power to enact their own or alternatively make modifications within their exclusive responsibility areas.
Former uncodified constitution examples
- The Roman republic was comprised of 12 Tables as well as other statues
- In Hungary from 1949, the constitution was uncodified.
- The Grand Principality of Finland’s constitution was uncodified and it did not specifically recognize emperor of Russia from 1809 through to 1917.
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Disadvantages of Uncodified Constitution
Constitutions are supposed to legally codify the responsibilities of a government to its people. They also highlight the rights of the people that must be respected by the government. A constitution is supposed to be a legally written document though there are instances when this is not the case. If this is the case, then it is known as an uncodified constitution. Though there are advantages to an uncodified constitution, there are also disadvantages such as no limitations on legislative bodies, unclear guidelines on devolution and division of government power.
Some of these disadvantages include the following:
The argument on the advantages of uncodified constitution is flexibility. Uncodified constitutions evolve with the society as the society changes over time. This flexibility is detrimental though since it creates room for devolution as is the case in the UK. Where there once existed a national assembly that was represented by all United Kingdom member states, a series of Acts towards the end of the twentieth century led to creation of state assemblies for Wales, Ireland and Scotland. Therefore, this kind of constitution is unable to check political movements that could destroy national unity.
Unclear power division
Codified constitutions are known to define and establish powers of every government branch. This means law enforcing, law making and government body powers afford individual government branches limited power such that none of the branches dominate the rest. Uncodified constitution on the other hand does not have any limitations hence government branches enjoy uncontrolled growth and power. There is also a recent trend growth of law enforcing or judicial government branches that leads to policy making. It is because of this fact that codified constitutions are largely advocated.
Legislation that is unlimited
The legislative government branch has the power to define and make laws which govern intricate workings in a society. Countries that have codified constitutions limit the power enjoyed by this branch ensuring the laws made aren’t harmful to the society. Uncodified constitution does not make such provisions that inhibit creation of laws that might increase inequality in a country, offer the wealthy protection or even limit the rights of the disadvantaged. Because an uncodified constitution is unlimited, this also means it might levy tax amounts that are inappropriate or even send its soldiers to war devoid of support from the people.
Creation of controversy
The greatest disadvantage though associated with uncodified constitution is controversy creation. Because there are no clear cut laws written down, misunderstandings might arise about the customs and use of the constitution provisions.
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