International Monetary and Financial Environments

ECN600Ch9.pptx

Home >Business & Finance homework help >Economics homework help > International Monetary and Financial Environments

Chapter 9

The International Monetary and Financial Environment

Copyright © 2017, 2014, 2012 by Pearson Education, Inc. All rights reserved. This publication is protected by Copyright, and permission should be obtained from the publisher prior to any prohibited reproduction, storage in a retrieval system, or transmission in any form or by any means, electronic, mechanical, photocopying, recording, or likewise.

International Business: The New Realities S. Tamer Cavusgil, Gary Knight, John R. Riesenberger

Module 9 Learning Outcomes

Discuss the exchange rates and currencies in international business.

Discuss the monetary and financial systems.

Identify the key players in the monetary and financial systems.

Module 10 Learning Outcomes

Define international financial management.

Identify the key tasks in international financial management.

Describe how to manage the diversity of international accounting and tax practices.

Objectives

9.1 Learn about exchange rates and currencies in international business.

9.2 Explain how exchange rates are determined.

9.3 Understand the emergence of the modern exchange rate system.

9.4 Describe the monetary and financial systems.

9.5 Identify the key players in the monetary and financial systems.

9.6 Understand the global debt crisis.

Outline

The European Union and the Euro

Exchange Rates and Currencies in International Business

How Exchange Rates are Determined

Emergence of the Modern Exchange Rate System

The Monetary and Financial Systems

Key Players in the Monetary and Financial System

The Global Debt Crisis

Closing Case: Financial Contagion and the Global Financial Crisis

The European Union and the Euro

9-1. What benefits does using a single currency, the euro, provide to European countries?

9-2. What challenges does the European Central Bank face in developing monetary policy for the EU?

9-3. What is the effect of a weak euro on European exporters? What is the effect on European consumers?

9-1. What benefits does using a single currency, the euro, provide to European countries?

9-2. What challenges does the European Central Bank face in developing monetary policy for the EU?

9-3. What is the effect of a weak euro on European exporters? What is the effect on European consumers?

The European Union and the Euro

The European Union (EU) was established in 1992. In 2015, it had 28 member countries. The EU created the European Monetary Union (EMU) and the European Central Bank (ECB) with the goal of establishing a common currency, the euro. In 2002, euro banknotes and coins were issued and replaced older, national currencies.

The European Union and the Euro

In 2015, the euro was the sole official currency of 19 EU member states: Austria, Belgium, Cyprus, Estonia, Finland, France, Germany, Greece, Ireland, Italy, Latvia, Lithuania, Luxembourg, Malta, Netherlands, Portugal, Slovakia, Slovenia, and Spain

The European Union and the Euro

The ECB treats the eurozone as one region rather than as separate countries with differing economic conditions. ECB monetary policy is complex because of the diverse economic and fiscal conditions that characterize each eurozone country.

For example, the ECB aims to keep inflation low by carefully limiting the supply of euros, but the policy response for controlling deflation, just as harmful as inflation, is to increase the money supply. ECB policy aimed at fixing deflation in one country might trigger inflation in another. Devising monetary policy that suits economic conditions in all EMU countries is challenging.

The European Union and the Euro

Monetary policy is further complicated by the recent admission into the EU of lower-income countries such as Slovakia and Slovenia. As more countries join the EU, the risk of very diverse economic conditions across the union rises.

Such pressures have increased in Europe’s recent economic crisis, especially in Greece, Portugal, and Spain. The EU plan to assist Greece includes loans and surveillance from the ECB. The crisis has sparked discussion about the risks of EU monetary integration and survival of the euro.

The European Union and the Euro

A key goal of launching the euro was to shield EMU countries from exchange rate risk by creating a large, unified economy. Historically, the euro was relatively strong against the U.S. dollar.

More recently the euro has weakened. A weak euro helps European exporters because it makes their products less expensive to foreign importers. A weak euro yields stronger earnings for European MNEs when they convert non-euro profits into euros. On the negative side, a weak euro decreases the buying power of European firms and consumers who purchase non-euro foreign goods.

The European Union and the Euro

The success of the euro as a unifying force in Europe has changed the international balance of power. The EU and EMU have empowered European governments to challenge U.S. policy initiatives in the wider global arena.

The central banks of numerous countries—including Canada, China, and Russia—have given greater weight to the euro in their foreign currency reserves. Some governments are increasing their euro holdings, and Asia is now less dollar-centric than in the past.

Exchange Rates and Currencies in International Business

Convertible and Nonconvertible Currencies

Foreign Exchange Markets

Currency Risk

Fluctuating exchange rates

Exchange Rates and Currencies in International Business

More than 150 currencies are in use around the world today. Cross-border transactions occur through an exchange of these currencies between buyers and sellers.

A currency is a form of money and a unit of exchange. Each country prefers using its own unique currency, which complicates international business transactions. When buying a product or service from a Mexican supplier, for example, you must convert your own currency to Mexican pesos to pay the supplier.

Convertible and Nonconvertible Currencies

The exchange rate—the price of one currency expressed in terms of another—varies over time.

A convertible currency can be easily exchanged for other currencies. The most easily convertible are called hard currencies and include the British pound, European euro, Japanese yen, and U.S. dollar.

They are strong, stable currencies that are universally accepted and used most often for international transactions.

Convertible and Nonconvertible Currencies

A currency is nonconvertible when it is not acceptable for international transactions. Some governments may not allow their currency to be converted into a foreign currency.

They prevent this conversion to preserve their supply of hard currencies, such as the euro or the U.S. dollar, or to avoid the problem of capital flight.

Foreign Exchange Markets

Money facilitates payment for the products and services that companies sell. Getting paid in your own country is straightforward; the U.S. dollar is accepted throughout the United States, the euro is widely used in Europe, and the Japanese use the yen to transact with each other.

But suppose a Canadian needs to pay a Japanese, or a Japanese needs to pay an Italian, or an Italian needs to pay a Canadian. What then?

Foreign Exchange Markets

The Japanese wants to be paid in yen, the Italian wants to be paid in euros, and the Canadian wants to be paid in Canadian dollars. All these currencies are known as foreign exchange.

Foreign exchange represents all forms of money that are traded internationally, including foreign currencies, bank deposits, checks, and electronic transfers. Foreign exchange resolves the problem of making international payments and facilitates international investment and borrowing among firms, banks, and governments.

Currency Risk

In 1999, 11 EU countries switched to the euro, eliminating the problem of exchange rate fluctuations in trade and investment with each other. By 2015, 19 member states were participating in the eurozone.

Other countries in Latin America, the Caribbean, and the Middle East have opted to use a regional or hard currency. The challenges posed by fluctuating exchange rates motivate countries to coordinate their monetary policies.

Governments attempt to manage exchange rates by buying and selling hard currencies and by keeping inflation under control. However, the foreign exchange market is huge and it shifts very quickly. Even major governments have difficulty controlling exchange rate movements.

Currency Risk

Fluctuating exchange rates affect both firms and customers. Suppose today the euro–dollar exchange rate is €1 = $1; that is, for a European to buy one U.S. dollar, he must pay one euro.

Next, suppose that during the coming year the exchange rate goes to €1.50 = $1. Now the dollar is much more expensive to European firms and consumers than before—it costs 50 percent more to acquire a dollar. Let’s examine the effect of this change on Europeans.

Effect on European Firms

European firms must pay more for inputs from the United States, such as raw materials, components, and support services they use to produce finished products and services.

Higher input costs reduce profitability and may force firms to raise prices to final customers; these higher prices reduce customer demand for goods and services.

Because the euro has become less expensive for U.S. consumers, firms can increase their exports to the United States. Firms can even raise their export prices and remain competitive in the U.S. market.

Increased exports to the United States generate higher revenues and higher profits.

Effect on European Consumers

Because U.S. products and services now cost more, European consumers demand fewer of them.

The cost of living rises for those Europeans who consume many dollar-denominated imports.

Fewer European tourists can afford to visit the United States. Fewer European students study at U.S. universities.

Currency Risk

In 2014–2015, U.S. companies such as Caterpillar and Microsoft saw dramatic falls in their international sales due to strengthening of the U.S. dollar against world currencies. In the year through June 2015, the dollar rose in value by more than 20 percent against the EU euro and the Japanese yen.

Sales at Tiffany’s department store in New York fell nearly 10 percent as a strong U.S. dollar resulted in fewer European tourists visiting the United States. Tiffany’s depends heavily on foreign tourists for sales at its flagship stores. Meanwhile, American tourists flocked to Europe in the summer of 2015 as the dollar hit a 12-year high against the euro. European exports to nations outside the eurozone soared. The cheaper euro made European travel and products a bargain

How Exchange Rates are Determined

Economic Growth

Inflation and Interest Rates

Market Psychology

Government Action

How Exchange Rates are Determined

In a free market, the price of any currency—that is, its exchange rate—is determined by supply and demand. Supply and demand adjust according to market forces.

Exchange rates fluctuate constantly because the global market for most major currencies is free and active. Continuous shifts in the supply of and demand for dollars result in continuous changes in the dollar exchange rate. Some currencies are pegged to fixed exchange rates and, thus, may not respond to market forces.

How Exchange Rates are Determined

All else being equal,

The greater the supply of a currency, the lower its price.

The lower the supply of a currency, the higher its price.

The greater the demand for a currency, the higher its price.

The lower the demand for a currency, the lower its price.

How Exchange Rates are Determined

Suppose a Canadian consumer wants to buy a BMW, sourced from Germany and priced at the nominal price of 30,000 euros. Assume further that the exchange rate of the euro to the Canadian dollar is €1 = $1.25. Now suppose the consumer delays six months, during which the exchange rate shifts, becoming €1 = $1.50. That is, due to increased demand for and/or decreased supply of euros, the euro has become more expensive to Canadian customers.

How Exchange Rates are Determined

Assuming the euro price of the BMW remains unchanged, the car will now cost more in Canadian dollars, making the consumer less inclined to buy the BMW.

By contrast, if, during the six-month period, the euro becomes cheaper (with, say, an exchange rate of €1 = $1), the Canadian consumer will be more inclined to buy the BMW. As this example implies, the greater the demand for a country’s products and services, the greater the demand for its currency.

Economic Growth

Economic growth is the increase in value of the goods and services an economy produces. To ensure accuracy, we usually measure economic growth of a nation as the annual increase in real GDP in which the inflation rate is subtracted from the growth rate.

To accommodate economic growth, the central bank increases the nation’s money supply. The central bank is the monetary authority in each country that regulates the money supply, issues currency, and manages the exchange rate of the nation’s currency relative to other currencies.

Economic growth is associated with an increase in the supply and demand of the nation’s money supply and, by extension, the nation’s currency. Thus, it has a strong influence on the supply and demand for national currencies. For example, recent rapid economic growth in East Asian countries has increased demand for their currencies by firms and individuals, both domestic and foreign.

Inflation and Interest Rates

Inflation is an increase in the price of goods and services. When inflation occurs, money buys less than in preceding years.

Interest rates and inflation are closely related. In countries with high inflation, interest rates tend to be high because investors expect to be compensated for the inflation-induced decline in the value of their money.

If inflation is running at 10 percent, for example, banks must pay more than 10 percent interest to attract customers to open savings accounts.

Inflation and Interest Rates

Inflation occurs when demand for money grows more rapidly than supply, or when the central bank increases the nation’s money supply faster than the rise in national productive output.

Inflation is often a problem for developing economies and emerging markets.

When inflation occurs, the value of the nation’s currency will fall relative to foreign currencies.

Market Psychology

Exchange rates are often affected by market psychology, the unpredictable behavior of investors. Herding is the tendency of investors to mimic others’ actions. Momentum trading occurs when investors buy stocks whose prices have been rising and sell stocks whose prices have been falling.

Herding and momentum trading tend to occur in the wake of financial crises. Recently, Brazil, Russia, and other emerging markets have experienced large-scale flight of portfolio investment amid concerns about deteriorating economic conditions. Foreign investors have panicked and many have deserted stocks in those countries.

Government Action

The pricing of currencies affects company performance. When a nation’s currency is expensive to foreigners, its exports are likely to fall.

When a nation’s currency is cheap to foreigners, exports increase.

When the value of a nation’s currency depreciates over a prolonged period, consumer and investor confidence can be undermined.

Steep currency depreciation weakens the nation’s ability to pay foreign lenders, possibly leading to economic and political crisis.

Government Action

To minimize these effects, governments often act to influence the value of their own currencies. The Chinese government regularly intervenes in the foreign exchange market to keep the renminbi undervalued, helping to ensure that Chinese exports remain strong.

Government Action

An undervalued national currency can result in a trade surplus. A trade surplus arises when a nation’s exports exceed its imports for a specific period of time, causing a net inflow of foreign exchange.

By contrast, a trade deficit results when a nation’s imports exceed its exports for a specific period of time, causing a net outflow of foreign exchange.

The balance of trade is the difference between the monetary value of a nation’s exports and its imports over the course of a year.

Emergence of the Modern Exchange Rate System

The Bretton Woods Agreement

International Monetary Fund (IMF)

World Bank

The Modern Exchange Rate System

The Floating Exchange Rate System

The Fixed Exchange Rate System

The Bretton Woods Agreement

This agreement pegged the value of the U.S. dollar to an established value of gold at a rate of $35 per ounce. The U.S. government agreed to buy and sell unlimited amounts of gold to maintain this fixed rate.

Each of Bretton Woods’ other signatory countries agreed to establish a par value of its currency in terms of the U.S. dollar and to maintain this pegged value through central bank intervention.

In this way, the Bretton Woods system kept exchange rates of major currencies fixed at a prescribed level relative to the U.S. dollar and, therefore, to each other.

The Bretton Woods Agreement

In the 1960s, however, emergent global economic conditions led to high trade deficits in the United States. Gradually growing demand for U.S. dollars exceeded supply. The U.S. government could no longer maintain an adequate stock of gold.

This situation put pressure on governments in Europe, Japan, and the United States to revalue their currencies. As a result, the link between the U.S. dollar and gold was suspended in 1971. The promise to exchange gold for U.S. dollars was withdrawn. This action brought an end to the Bretton Woods system.

The Bretton Woods Agreement

The Bretton Woods agreement left a legacy of principles and institutions that remain in use today. Specifically, Bretton Woods established: the International Monetary Fund and the World Bank.

The IMF is an international agency that attempts to stabilize currencies by monitoring the foreign exchange systems of member countries and lending money to developing economies.

The World Bank is an international agency that provides loans and technical assistance to low- and middle-income countries, with the goal of reducing poverty.

The Modern Exchange Rate System

Today most major currencies are traded freely, with their value floating according to the forces of supply and demand. The official price of gold was formally abolished. Governments became free to choose the type of exchange rate system that best suited their individual needs. Fixed exchange rate systems were given equal status with floating exchange rate systems.

The exchange rate system today consists of two main types of foreign exchange management: the floating system and the fixed system.

The Floating Exchange Rate System

Most advanced economies use the floating exchange rate system. Currency values are determined by market forces. Major world currencies—including the British pound, Canadian dollar, euro, U.S. dollar, and Japanese yen—float independently on world exchange markets.

Their exchange rates are determined daily by supply and demand.

The floating system gives governments the flexibility to modify monetary policy to fit the circumstances they face at any time.

The Fixed Exchange Rate System

This approach is similar to the system used under the Bretton Woods agreement and is sometimes called a pegged exchange rate system.

Using this system, the value of a currency is set relative to the value of another (or to the value of a basket of currencies) at a specified rate.

As this reference value rises and falls, so does the currency pegged to it.

In the past, some currencies were also fixed to some set value of gold.

The Fixed Exchange Rate System

Many developing economies and some emerging markets use the fixed system today.

China pegs its currency to the value of a basket of currencies. Belize pegs its currency to the U.S. dollar. To maintain the peg, the governments of China and Belize, for instance, will intervene in currency markets to buy and sell dollars and other currencies to maintain the exchange rate at a fixed, preset level.

A fixed regime promotes greater stability and predictability of exchange rate movements and helps stabilize a nation’s economy.

The central bank must stand ready to fill any gaps between supply and demand for its currency.

The Monetary and Financial Systems

International Monetary System

Global Financial System

Causes of integration of financial and monetary activity

The evolution of monetary and financial regulations worldwide.

The development of new technologies and payment systems and the use of the Internet in global financial activities.

Increased global and regional interdependence of financial markets.

The growing role of single-currency systems, such as the euro.

International Monetary System

The international monetary system consists of the institutional frameworks, rules, and procedures that govern how national currencies are exchanged for one another.

By providing a framework for the monetary and foreign exchange activities of firms and governments worldwide, the system facilitates international trade and investment.

Global Financial System

The global financial system consists of the collective financial institutions that facilitate and regulate flows of investment and capital funds worldwide.

Key players in the system include finance ministries, national stock exchanges, commercial banks, central banks, the Bank for International Settlements, the World Bank, and the International Monetary Fund.

Causes of integration of financial and monetary activity

The growing integration of financial and monetary activity worldwide has several causes, including:

The evolution of monetary and financial regulations worldwide.

The development of new technologies and payment systems and the use of the Internet in global financial activities.

Increased global and regional interdependence of financial markets.

The growing role of single-currency systems, such as the euro.

Key Players in the Monetary and Financial Systems

Exhibit 9.4 Key Participants and Relationships in the Global Monetary and Financial Systems (Cavusgil, 2016, p.242)

The Firm

As companies engage in international trade and are paid by their customers abroad, they typically acquire large quantities of foreign exchange and must convert them to the currency of the home country. Firms also engage in investment, franchising, and licensing activities abroad that generate revenues they must exchange for their home currency.

For example, Jim Moran Enterprises in Florida, the largest importer of Toyota cars in the United States, imports thousands of cars every year and must ultimately pay for them in Japanese yen. Moran deals with the foreign exchange market to convert U.S. dollars to yen.

National Stock Exchanges and Bond Markets

A stock exchange is a facility for trading securities and other financial instruments, including shares issued by companies, trust funds, pension funds, and corporate and government bonds.

Information technology has revolutionized the functioning of stock markets, greatly reducing the speed and cost of transactions. Today, many exchanges are electronic networks not necessarily tied to a fixed location. Each country sets its own rules for issuing and redeeming stock.

Commercial Banks

Banks are important players in the global financial sector. They raise funds by attracting deposits, borrowing money in the interbank market, or issuing financial instruments in the global money market or securities markets.

Commercial banks—for example, Bank of America, Mizuho Bank in Japan, and BBVA in Spain—operate at the most essential level of the international monetary system. They circulate money and engage in a wide range of international financial transactions.

Banks are regulated by national and local governments, which have a strong interest in ensuring the solvency of their national banking system.

Commercial Banks

The many types of banks and their primary activities include the following:

Investment banks underwrite (guarantee the sale of) stock and bond issues and advise on mergers, such as the merger of Goldman Sachs in the United States and Nomura Securities in Japan.

Merchant banks provide capital to firms in the form of shares rather than loans. They are essentially investment banks that specialize in international operations. They do not provide regular banking services to the general public. The Arab-Malaysian Merchant Bank is an example.

Commercial Banks

Private banks manage the assets of the very rich. Union Bank in Switzerland (UBS) and ABN AMRO Private Banking in Luxembourg are examples.

Offshore banks are located in jurisdictions with low taxation and regulation, such as Switzerland and Bermuda. Banco General in Panama and Bank of Nova Scotia in the British Virgin Islands are examples.

Commercial banks deal mainly with corporations or large businesses. Credit Lyonnais in France and Bank of America are examples.

Central Banks

As the official national bank of each country, the central bank regulates the money supply and credit, issues currency, and manages the rate of exchange.

The central bank also seeks to ensure the safety and soundness of the national financial system by supervising and regulating the nation’s banking system. A key goal is to keep price inflation low.

The Bank for International Settlements

Based in Basel, Switzerland, the Bank for International Settlements is an international organization that fosters cooperation among central banks and other governmental agencies.

It provides banking services to central banks and assists them in devising sound monetary policy. It seeks to support stability in the global monetary and financial systems and help governments avoid becoming too indebted.

It also attempts to ensure that central banks maintain reserve assets and capital/asset ratios above prescribed international minimums.

International Monetary Fund

Headquartered in Washington, DC, the IMF provides the framework of and determines the code of behavior for the international monetary system.

The agency promotes international monetary cooperation, exchange rate stability, and orderly exchange arrangements and encourages countries to adopt sound economic policies. These functions are critical because economic crises can destroy jobs, slash incomes, and cause human suffering.

The World Bank

Originally known as the International Bank for Reconstruction and Development, the World Bank was founded to fund reconstruction of Japan and Europe after World War II.

Today it aims to reduce world poverty and is active in various development projects to bring water, electricity, and transportation infrastructure to poor countries.

Headquartered in Washington, DC, the bank is a specialized agency of the United Nations, with more than one hundred offices worldwide.

The Global Debt Crisis

Fiscal imbalances are an important source of risk and uncertainty in the global business environment

Debt has substantially increased in major advanced economies … by excessive government spending and insufficient revenues

Bottom line: Without significant adjustments, most advanced economies face serious threats to fiscal solvency

The Global Debt Crisis

Governments spent huge sums of borrowed money in the latest global recession to bail out financial systems and reduce recessionary pressures.

Governments face unfunded liabilities of pension and health care programs. Japan, the United States, numerous countries in Europe, and others are suffering under the weight of excessive government debt.

Since 2012, credit rating agencies Moody’s and Standard & Poor’s have downgraded the sovereign debt ratings of several European countries to reflect their susceptibility to growing financial and monetary risks.

The Global Debt Crisis

Research shows that national debt that exceeds 90 percent of a nation’s GDP tends to diminish GDP growth, which exacerbates government debt.

As the government tries to pay down its debt, money is drawn out of the national money supply. This hinders economic activity and reduces tax revenues.

In the past few years, numerous countries have surpassed the 90 percent threshold, including Japan, the United States, and several countries in Europe.

The International Monetary Fund and other agencies have stated that, without significant adjustments, most advanced economies face serious threats to fiscal solvency in the long-run.

Closing Case

Financial Contagion and the Global Financial Crisis

9-4. Explain the advantages and disadvantages of the globalization of finance. How did it contribute to the global financial crisis?

9-5. Describe how the fall of AIG exemplifies contagion. How did the U.S. government bailout of AIG benefit foreign as well as U.S. firms and investors? Experts are advocating increased regulation to prevent contagion. At the national and international levels, what types of regulation might prevent future crises?

9-6. Several European countries have adopted a single currency, the euro. Describe how adopting the euro might benefit countries in Eastern Europe. What are the advantages and disadvantages of a single currency regime in international financial transactions?

9-7. As the world emerges from the global financial crisis, what is the potential role of each of the following: firms, banks, central banks, national governments, the International Monetary Fund, and the World Bank? What is the role of national governments in stimulating national economic growth?

Financial Contagion and the Global Financial Crisis

Growing integration of financial and monetary sectors of the world’s economies is an important aspect of globalization. The globalization of finance is characterized by massive cross-national flows of money and capital and the development of a giant foreign exchange market. National financial markets are increasingly interdependent.

Every day around the world, firms access global capital markets. Banks and brokers move huge sums across national borders through pensions, mutual funds, life insurance, and other investments. Among numerous benefits, financial globalization increases savings and reduces capital costs in developing economies.

Financial Contagion and the Global Financial Crisis

In 2008, a financial crisis began in the United States and quickly spread around the world. The crisis arose because investors lost confidence in the value of thousands of home mortgages, and commercial banks, mortgage lenders, and insurance companies became unstable. Stock markets crashed and many national economies sank into recession.

Financial Contagion and the Global Financial Crisis

The crisis spread to Europe. European banks were drawn into the financial crisis in part because of their exposure to defaulted mortgages in the U.S.

The crisis also spread to emerging economies such as Iceland and Russia that generally lacked the resources to restore confidence in their economic systems.

The Crisis in Emerging Markets

Eastern Europe is often characterized by a dangerous combination of devalued local currencies and mounting foreign currency debt.

This occurs because, as they participate in the global economy, such countries as Hungary, Poland, and the Czech Republic must use hard currencies, or widely recognized foreign exchange.

Many homeowners in Poland pay their monthly mortgages in zlotys (Poland’s national currency), but because the loans often originate in Britain, Germany, or the United States, they ultimately must be paid in pounds, euros, or dollars.

As currencies in Eastern Europe lose value, nations in the region struggle to pay their foreign debt.

The IMF and the World Bank

In the wake of the financial crisis, the International Monetary Fund stepped up efforts to foster cooperation, stability, and economic growth around the world. The IMF provided more than $100 billion in loans and credit to emerging countries hit by falling demand for their exports, collapsing financial markets, and wary consumers.

For example, the IMF committed lending to Hungary, Iceland, Poland, and Ukraine. In 2009, Mexico was granted a credit line worth $47 billion. Similarly, the World Bank provided financial aid and technical assistance to numerous developing economies.

The IMF and the World Bank

The Bank provides grants and low-interest loans to poor countries for investments in education, health, infrastructure, and private sector development. For example, the Bank loaned millions to El Salvador and other Latin American countries to buffer against the global financial crisis.

In Africa, the Bank provided millions to finance highway construction and other infrastructure development. At the same time, however, though IMF and World Bank loans help struggling economies, they are yet another form of debt in a debt-fueled crisis and a debt-ridden world.

Summary

Exchange rates and currencies in international business

How exchange rates are determined

Emergence of the modern exchange rate system

The monetary and financial systems

Key players in the monetary and financial systems

The global debt crisis

Assignments and Reminders

Critical Thinking Assignment Mod 9

Discussion Board Mod 10

Quiz Modules 9 & 10

CYU’s

Critical Thinking Assignment

Explain the causes of the global financial and economic crisis that started in the U.S. in 2007. What effect did it have on the global economy? How did the global economy recover? What kind of fiscal and monetary policies were implemented? What are the challenges that remain for the global economy?

Next Live Session

Our next live session will be on March 19 2019 at 7 pm KSA.

Your Questions

Need clarification? Ask your questions!

Status Check

How is the course proceeding?

What can I help you with?