CHAPTER 2 SUMMARIZED NOTES A) THE EVOLUTION OF INTERNATIONAL MONETARY SYSTEM 1) THE CLASSICAL GOLD STANDARD ERA (1870-1914) Characteristics: All currencies are valued in terms of their gold equivalent and thus all currencies are linked together. Eg: 1 ounce of gold = $20.67 1 ounce of gold = £4.25 so 1£ = (20.67 /4.25) = $4.87 Money has a value fixed in terms of commodity gold. Since gold is costly to produce‚ governments could not easily increase their
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We discuss the currency depreciation vs. devaluation. Also‚ discuss the impact of currency depreciation from Indian economy perspective. Currency Depreciation & Impact Rajesh Kanjani (34473) rajesh.kanjani@hotmail.com SIBM Exe. MBA (2011-2014) Currency Devaluation vs. Depreciation The devaluation and deprecation of currency go more or less hand in hand. Currency depreciation is an economic result‚ whereas devaluing a currency is an act that results in currency depreciation. Many a times
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This PDF is a selection from a published volume from the National Bureau of Economic Research Volume Title: International Trade in East Asia‚ NBER-East Asia Seminar on Economics‚ Volume 14 Volume Author/Editor: Takatoshi Ito and Andrew K. Rose‚ editors Volume Publisher: University of Chicago Press Volume ISBN: 0-226-37896-9 Volume URL: http://www.nber.org/books/ito_05-1 Conference Date: September 5-7‚ 2003 Publication Date: August 2005 Title: The Effects of Financial Crises on International
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depression of the 30s. It was used to stop nation states using currency devaluations to increase competitiveness. Due to a lack of scale and coordination‚ these policies stagnated foreign direct investment and international trade volume. Bretton Woods created a fixed exchange rate system pegged to the dollar‚ maintained by other countries selling or buying their own currency and in turn keeping its value linked to that of the dollar. For more than a decade the system was associated with steady growth
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currency exchange rate fluctuations forcing many to implement policies to mitigate their financial losses. It would be idealistic to expect when operating on a global scale‚ that devaluation of currencies would correlate with falling prices. It can be quite the opposite as we have seen with trades‚ that devaluation of the dollar means that imports get more expensive and the exports of goods become more competitive. Similarly‚ a devalued foreign currency can lower profit margins for a U.S. company operating
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New York................................................. Peso Exchange Rate Changes……………………….. Good as Sold……………………………………………. Gold Standard…………………………………………… Spot Rate Customer……………………………………. Forward Rate……………………………………………. Forward Discount on the dollars………………………. Forward Premium on the euro………………………… Iraqi Imports…………………………………………….. 19 20 20 22 22 22 23 23 24 26 28 29 30 31 32 Problem # 2.1: Problem # 2.2: Problem # 2.3: Problem # 2.4: Problem # 2.5: Problem # 2.6: Problem # 2.7: Problem #
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amounting to $900m‚ an investment exposure due to their equity stakes in numerous Japanese companies (Fuji‚ Isuzu and Suzuki- 20%‚ 49% and 20% respectively)‚ a financing exposure through a yen-denominated loan (a result in having to repay more US dollars in comparison to the increase in Yen) and also the yen bond issue which were outstanding worth $500m. Question 2 – What is different about competitive exposure? * Competitive exposure has nothing to do with Cash Flows or Balance Sheet as
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www.bized.co.uk/virtual/bank/economics/markets/foreign/further1.htm at 30 August 2008. Liew and Wu‚ ‘The making of China’s exchange rate policy: from plan to WTO entry’ (2007). McKinnon‚ Ronald‚ ‘Why China should keep its exchange rate pegged to the dollar: a historical perspective from Japan’ (2006). Munoz‚ Central bank quasi-fiscal losses and high inflation in Zimbabwe: a note (2007) IMF www.imf.org/external/pbs/cat/longres.cfm?sk=20630 at 3 September 2008. Pentecost‚ ‘Exchange rate dynamics’ (1993)
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exchange rate was $0.54‚ what should the exchange rate be in 1988? In fact‚ the exchange rate in 1988 was DM 1 = $0.56. What might account for the discrepancy? (Price levels were measured using the consumer price index.) Answer. If e1981 is the dollar value of the German mark in 1988‚ then according to purchasing power parity e1988/.54 = 106/102 or e1988 = $.5612. The discrepancy between the predicted rate of $.5612 and the actual rate of $.56 is insignificant and hence needs no explaining. Historically
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They gambled short and long‚ with purchases and repurchases taking advantage of currency devaluations. It did not happen the same in Asia‚ where Malaysia’s complaints Soros earned by his speculations. Then followed Russia. Krugman’s conclusion is that speculators may not be the cause of currency crises but arriving before or precipitate. Only Hong
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