international monetary system

MODULE 10
International Monetary System

Learning Objectives:
1. Explain how exchange rates influence the activities of domestic and international companies.
2. Identify the factors that help determine exchange rates and their impact on business.
3. Describe the primary methods of forecasting exchange rates.
4. Discuss the evolution of the current international monetary system, and explain how it operates.

Chapter Outline:

Introduction
How Exchange Rates Influence Business Activities
Desire for Stability and Predictability
What Factors Determine Exchange Rates?
Law of One Price
Big MacCurrencies
Purchasing Power Parity
Role of Inflation
Impact of Money-Supply Decisions
Impact of Unemployment and Interest Rates
How Exchange Rates Adjust to Inflation
Role of Interest Rates
Fisher Effect
Evaluating Purchasing Power Parity
Impact of Added Costs
Impact of Trade Barriers
Impact of Business Confidence and Psychology
Forecasting Exchange Rates
Efficient Market View
Inefficient Market View
Forecasting Techniques
Fundamental Analysis
Technical Analysis
Difficulties of Forecasting
Evolution of the International Monetary System
Early Years: The Gold Standard
Par Value
Advantages of the Gold Standard
Collapse of the Gold Standard
Bretton Woods Agreement
Fixed Exchange Rates
Built-In Flexibility
World Bank
International Monetary Fund
Special Drawing Right (SDR)
Collapse of the Bretton Woods Agreement
Smithsonian Agreement
Final Days
A Managed Float System Emerges
Jamaica Agreement
Later Accords
Today’s Exchange-Rate Arrangements
Pegged Exchange-Rate Arrangement
Currency Board
European Monetary System
How the System Worked
Recent Financial Crises
Developing Nations’ Debt Crisis
Mexico’s Peso Crisis
Southeast Asia’s Currency Crisis
Russia’s Ruble Crisis
Argentina’s Peso Crisis
Future of the International Monetary System
Bottom Line for Business
Impact on Business Strategy
Forecasting Earnings and Cash Flows