Economics - Theory and Practice: Ninth Edition

Economics Theory and Practice
Ninth Edition
Welch & Welch John Wiley & Sons Publishing

Economics: Theory & Practice 9th Edition Welch & Welch John Wiley & Sons, Inc. 2010 All Rights Reserved
17-1
Chapter Seventeen:
International Finance
Chapter Objectives
To define exchange rates and explain how they are determined. To introduce foreign exchange markets, and to identify some factors that cause exchange rates to fluctuate. To identify the major categories into which international financial transactions can be placed, and to understand their interrelationships. To define balance of trade, and to discuss its performance over the past few decades. To introduce the debt problem faced by some countries and issues in unifying monetary systems.
17-2
Chapter Seventeen Overview

Exchanging Currencies
Fixed Exchange Rates

Flexible Exchange Rates Chapter Seventeen Foreign Exchange Markets
International Financial Transactions and Balances Challenges to the International Financial System
17-3
Exchanging Currencies
Exchange Rates: Number of units of a nations currency that is equal to one unit of another nations currency. Determined by either fixed or flexible exchange rate systems.
17-4
Fixed Exchange Rates

Fixed Exchange Rates: Fluctuate little between nations currencies due to their values being defined in terms of gold. Change occurs when a nation redefines its value of money in terms of gold. Devaluation occurs when a country backs its monetary unit by less gold than it had previously. Prior to adapting a flexible exchange rate system in 1971, exchange rates between the dollar and many other currencies were based primarily on the value of gold; i.e., values expressed as to amount of gold one unit of each currency would command.
17-5
Flexible Exchange Rates

Flexible Exchange Rates: Fluctuate because they are determined by the forces of demand and supply.
Follow the Law of Demand and the Law of Supply.
Demand and Supply Curves.
17-6
Flexible Exchange Rates

Flexible Exchange Rates (cont.): Determined by where the demand and supply curves intersect.
17-7
Foreign Exchange Markets

Foreign Exchange Markets: Markets for the trading of two nations monies. Changes in Exchange Rates: Causes the value of one nations money to change when compared to the value of another nations money. Decrease in value of a nations money: Exports cost less to foreign buyers. Imports cost more to domestic buyers. Increase in value of a nations money: Exports cost more to foreign buyers. Imports cost less to domestic buyers.
17-8
Foreign Exchange Markets

Factors Influencing Exchange Rates: Taste for particular foreign products. Change in economic conditions in either the demanding or supplying country. Rate of interest that can be earned on securities issued by private and government borrowers in different countries. Policies of foreign governments and banks.
Changes in the Demand for and Supply of a Foreign Currency
17-9
International Financial Transactions and Balances
Current Account: Records figures for exports and imports of merchandise, services, unilateral transfers, and other foreign dealings. Surplus occurs when a positive figure results from the sum of all current account transactions. Deficit occurs when a negative figure results from the sum of all current account transactions. Balance of Trade: Figure that results when merchandise imports are subtracted from exports. Surplus occurs when the value of a countrys merchandise exports is greater than the value of its imports. Deficit occurs when the value of a countrys merchandise exports is less than the value of its imports.
17-10

U.S. Balance of Trade: 19702007
17-11

Capital Account: Records the purchase and sale of financial and real assets between the U.S. and other nations.
17-12
Challenges to the International Financial System
External Debt: Money owed by borrowers in one country to lenders in other countries: Borrowing nations had to cut back on spending in order to honor their financial obligations to foreign lenders: Often resulted in the reduction or elimination of spending on investment goods, which hampered future economic growth for the borrowing nations.
Brady Plan proposed restructuring and reducing the debts owed to commercial banks by developing countries: Repayment period could be extended. Existing loans could be swapped for bonds with smaller principals or lower interest rates. Borrowing nations could buy back their debt at deep discounts.
Heavily Indebted Poor Countries (HIPC) Initiative: A joint initiative by the World Bank and International Monetary Fund to help heavily indebted developing countries manage their external debts.
17-13

The Debt Issue:
17-14
Monetary Integration in Europe: European Monetary System (EMS): Formed in 1979. Agreement to limit the variability of exchange rates between European nations currencies.
Maastricht Treaty: Created in 1991. Called for a common currency and central bank to oversee a single monetary policy for countries belonging to Europes Economic and Monetary Union. Led to the introduction of the euro on January 1, 1999. Resulted in the system-wide change of currencies used in EU countries to the euro on January 1, 2002.
17-15
Chapter Seventeen End
ECONOMICS THEORY AND PRACTICE Welch & Welch Ninth Edition Copyright 2010 John Wiley & Sons, Inc. All rights reserved. Reproduction or translation of this work beyond that permitted in Section 117 of the 1976 United States Copyright Act without the expressed written permission of the copyright owner is unlawful. Request for further information should be addressed to the Permissions Department, John Wiley & Sons, Inc. The purchaser may make back-up copies for his/her own use only and not for distribution or resale. The Publisher assumes no responsibility for errors, omissions, or damages, caused by the use of these programs or from the use of the information contained herein.
17-16

Economics - Theory and Practice: Ninth Edition

Caricato da

Informazioni sul documento

Titolo originale

Copyright

Formati disponibili

Condividi questo documento

Condividi o incorpora il documento

Opzioni di condivisione

Hai trovato utile questo documento?

Questo contenuto è inappropriato?

Copyright:

Formati disponibili

Economics - Theory and Practice: Ninth Edition

Caricato da

Copyright:

Formati disponibili

Economics Theory and Practice

Welch & Welch John Wiley & Sons Publishing

Chapter Seventeen Overview

Fixed Exchange Rates

Fixed Exchange Rates

Flexible Exchange Rates

Follow the Law of Demand and the Law of Supply.

Demand and Supply Curves.

Flexible Exchange Rates

Foreign Exchange Markets

Foreign Exchange Markets

Changes in the Demand for and Supply of a Foreign Currency

International Financial Transactions and Balances

International Financial Transactions and Balances

International Financial Transactions and Balances

Challenges to the International Financial System

Challenges to the International Financial System

Challenges to the International Financial System

Chapter Seventeen End

Potrebbero piacerti anche