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FINANCIAL ENVIRONMENT Chapter Three PowerPoint Presentation
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FINANCIAL ENVIRONMENT Chapter Three

FINANCIAL ENVIRONMENT Chapter Three

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FINANCIAL ENVIRONMENT Chapter Three

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  1. FINANCIAL ENVIRONMENTChapter Three John Wiley & Sons, c 1998

  2. Financial EnvironmentChapter Three • 1. Historical Role of the US Dollar • 2. The Gold Standard • 3. The Interwar Years • 4. Development of the Current International Monetary System • 5. Fixed versus Floating Exchange Rates • 6. Foreign and Foreign Exchange Rates • 7. Balance of Payments John Wiley & Sons, c 1998

  3. 1. Historical Role of the US Dollar • absence of a universal currency • exchange of the dollar based on gold ounce • common denominator in world trade • the dollar in the 70’s, 80’s and 90’s. John Wiley & Sons, c 1998

  4. 2. The Gold Standard • par values • three major features • system of fixed exchange rates • limited rate of growth in a country’s money supply • automatic adjustment tool • problems John Wiley & Sons, c 1998

  5. 3. The Interwar Years 1919-1939 • the English pound sterling position • the US dollar position John Wiley & Sons, c 1998

  6. 4. Development of Today’s International Monetary System • The Bretton Woods Conference in New Hampshire in 1944 • ruled out return to the gold standard • free floating exchange rates could not work • need for a monetary system to recognize that exchange rates were both national and international John Wiley & Sons, c 1998

  7. 4. Development of an International Monetary System (cont) • The International Monetary Fund (IMF) • to promote international monetary cooperation • to facilitate expansion and balanced growth of international trade • to promote exchange stability • to assist in establishment of a multilateral system of payments • to give members temporary use of availability of funds • to shorten duration and lessen degree of disequilibrium John Wiley & Sons, c 1998

  8. 4. Development of an International Monetary System (cont) • The International Bank for Reconstruction and Development • The World Bank • Twin Crises • oil prices • foreign debt John Wiley & Sons, c 1998

  9. 5. Fixed versus Floating Exchange Rates • problems • free (clean) float • managed float • Exhibit 3-1 “Foreign Exchange Rate Fluctuations over Past 30 Years” • Currency Blocs John Wiley & Sons, c 1998

  10. 6. Foreign Exchange and Foreign Exchange Rates • Purchasing Power Parity (PPP) • Exhibit 3-2 “ The Big Mac Index” • Forecasting Exchange Rate Fluctuation • Exhibit 3-3 “Factors Influencing Foreign Exchange Rates” • Coping with Exchange Rate Fluctuations • Spot versus Forward Foreign Exchange • Exhibit 3-4 “Exchange Rates Fri May 23, 1997 • Exchange Rate Pass Through John Wiley & Sons, c 1998

  11. 7. Balance of Payments • Exhibit 3-5 US Balance of Payments 1980-1996 • trade balance • current account balance • capital account • Direct Investment • Portfolio Investment • The Internal and External Adjustments John Wiley & Sons, c 1998