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International vs. Traditional Finance
Major factors that distinguish them :
Exchange rate of different foreign currencies.
Different tax and legal systems ( Siberia vs. Japan warehouse permit )
Cultural differences
Different political system (sovereign risk)
Different inflation rates (inflation risk)
Exchange rates and Monetary systems
Foreign Exchange Rate is the price of one currency in terms of another and can be express in direct or indirect quotation.
Bretton Woods Fixed Exchange System establish
the rules for commercial and financial relations
Reason for collapsing : currency in countries with
high inflation rate started to devalue ;
overvaluing the dollar the deficit got worse.
Events : August, 1971 – Nixon decided to devalue the dollar (gold ).
December, 1971 – Smithsonian Agreement : devaluation of the dollar by 7.9% , member governments should intervene at ± 2.25%
Exchange rates and Monetary systems
Events : April, 1972– Led by Germany, Snake Agreement was signed by a number of European countries.
February, 1973 – Devaluation of US Dollar led to the demise of international fixed system.
October , 1976 – The meetings of the IMF and World Bank of Jamaica decided to abrogate the fixed exchange system,
and the gold was demonetized
March, 1979– The Snake collapsed and EMS
was created. Under EMS foreign exchange rates are
held together within specified limits.
Exchange rates and Monetary systems
Under Floating Exchange System :
demand and supply of trade able goods.
relative inflation rates in different countries
relative interest rates in different countries
relative income levels in different countries
international investments
speculation
Conținut arhivă zip
- International Finance.ppt