BUSI 311 FINAL QUESTIONS AND ANSWERS EXAM LATEST
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Foreign exchange rate
the price of one currency in terms of another
appreciation
An increase in the value of a currency
Depreciation
a loss in the value of the currency relative to another
Inflation
a general increase in prices and fall in the purchasing value of money.
deflation
a decrease in the general level of prices, increase in the purchasing value of money
What determines the foreign exchange rate
1. Relative price differences & PPP
2. Interest rates and money supply
3. Productivity and balance of payments
4. Exchange rate policies
5. Investor psychology
Relative price differences
Prices are cheaper in developing countries - costs of inputs are the same but non-
traded inputs like labor and real estate are cheaper
interest rates and money supply
The cost of borrowing money
the quantity of money available in the economy
Productivity
the quantity of goods and services produced from each country
exchange rate policies
Floating: flexible exchange rate,
Fixed: fixed exchange rate
The international monetary system
The Gold Standard (1870 - 1973)
The Bretton Woods System (1944 - 1973)
The Post-Bretton Woods System (1973 - Present)
- the International Monetary Fund (IMF)
- New Development Bank (NDB)
The Gold Standard
A monetary system in which paper money and coins are equal to the value of a certain
amount of gold
The Bretton Woods System
A system in which all currencies were pegged at a fixed rate to the US dollar.
, International monetary fund (IMF)
New Development Bank (NDB)
International Monetary Fund
a United Nations agency to promote trade by increasing the exchange stability of the
major currencies
New Development Bank
- Its aim is to utilize resources to support infrastructure and sustainable development
projects in emerging market economies through loans, guarantees, equity participation
and other financial instruments
- Provides technical assistance for the preparation and implementation of infrastructure
The Post-Bretton Woods System
A system of flexible exchange rate regimes with no official common denominator.
Counteracting Currency Fluctuations
- Invoicing in their own currencies
- Currency hedging - a forward transaction
- Strategic Hedging - spreading out activities in a number of countries in different
currency zones to offset and currency losses in one region through gains in other
regions
2 Types of Economic Integration
Regional
Global
Regional Economic Integration
efforts to reduce trade and investment barriers within one region
Global economic integration
efforts to reduce trade and investment barriers around the globe
Benefits of Global Economic Integration
Political
- propose peace
- build confidence in multilateral trading system
Economic
- disputes are handled constructively
- rules make life easier and discrimination impossible
- free trade and investment raise incomes and stimulate economic growth
General Agreement on Tariffs and Trade (GATT)
a multilateral agreement governing the international trade of goods (merchandise)
World Trade Organization (WTO)
the official title of the multilateral trading system and the organization underpinning this
system since 1995
- aim of encouraging global trade, preventing global conflict
Types of Regional Economic Integration
1. Free Trade Area
2. Customs Union
3. Common Market
UPDATE.Buy Quality Materials!
Foreign exchange rate
the price of one currency in terms of another
appreciation
An increase in the value of a currency
Depreciation
a loss in the value of the currency relative to another
Inflation
a general increase in prices and fall in the purchasing value of money.
deflation
a decrease in the general level of prices, increase in the purchasing value of money
What determines the foreign exchange rate
1. Relative price differences & PPP
2. Interest rates and money supply
3. Productivity and balance of payments
4. Exchange rate policies
5. Investor psychology
Relative price differences
Prices are cheaper in developing countries - costs of inputs are the same but non-
traded inputs like labor and real estate are cheaper
interest rates and money supply
The cost of borrowing money
the quantity of money available in the economy
Productivity
the quantity of goods and services produced from each country
exchange rate policies
Floating: flexible exchange rate,
Fixed: fixed exchange rate
The international monetary system
The Gold Standard (1870 - 1973)
The Bretton Woods System (1944 - 1973)
The Post-Bretton Woods System (1973 - Present)
- the International Monetary Fund (IMF)
- New Development Bank (NDB)
The Gold Standard
A monetary system in which paper money and coins are equal to the value of a certain
amount of gold
The Bretton Woods System
A system in which all currencies were pegged at a fixed rate to the US dollar.
, International monetary fund (IMF)
New Development Bank (NDB)
International Monetary Fund
a United Nations agency to promote trade by increasing the exchange stability of the
major currencies
New Development Bank
- Its aim is to utilize resources to support infrastructure and sustainable development
projects in emerging market economies through loans, guarantees, equity participation
and other financial instruments
- Provides technical assistance for the preparation and implementation of infrastructure
The Post-Bretton Woods System
A system of flexible exchange rate regimes with no official common denominator.
Counteracting Currency Fluctuations
- Invoicing in their own currencies
- Currency hedging - a forward transaction
- Strategic Hedging - spreading out activities in a number of countries in different
currency zones to offset and currency losses in one region through gains in other
regions
2 Types of Economic Integration
Regional
Global
Regional Economic Integration
efforts to reduce trade and investment barriers within one region
Global economic integration
efforts to reduce trade and investment barriers around the globe
Benefits of Global Economic Integration
Political
- propose peace
- build confidence in multilateral trading system
Economic
- disputes are handled constructively
- rules make life easier and discrimination impossible
- free trade and investment raise incomes and stimulate economic growth
General Agreement on Tariffs and Trade (GATT)
a multilateral agreement governing the international trade of goods (merchandise)
World Trade Organization (WTO)
the official title of the multilateral trading system and the organization underpinning this
system since 1995
- aim of encouraging global trade, preventing global conflict
Types of Regional Economic Integration
1. Free Trade Area
2. Customs Union
3. Common Market
