1187Philosophical Foundations of the CurriculumTheresa M. T.docx

118
7
Philosophical Foundations of the Curriculum
Theresa M. “Terry” Valiga, EdD, RN, CNE, ANEF, FAAN
Beautiful words. Admirable values. Published prominently on
websites and in catalogues, student handbooks and accreditation
reports. The philosophical statement of a school of nursing is
accepted by faculty as a document that must be crafted to please
external reviewers, but for many it remains little more than that.
Far too often the school’s philosophy remains safely tucked
inside a report but is rarely seen as a living document that
guides the day-to-day workings of the school.
In reality, the philosophy of a school of nursing should be
referenced and reflected upon often. It should be reviewed
seriously with candidates for faculty positions and with those
individuals who join the community as new members. It should
be discussed in a deliberate way with potential students and
with students as they progress throughout the program. And it
should be a strong guiding force as the school revises or
sharpens its goals, outlines action steps to implement its
strategic plan, and makes decisions about the allocation of
resources.
This chapter explores the significance of reflecting on,
articulating, and being guided by a philosophy, examines the
essential components of a philosophy for a school of nursing,
and points out how philosophical statements guide the design
and implementation of the curriculum and the evaluation of its
effectiveness. The role of faculty, administrators, and students
in crafting and “living” the philosophy is discussed, and the
issues and debates surrounding the “doing of philosophy”
(Greene, 1973) are examined. Finally, suggestions are offered
regarding how faculty might go about writing or revising the
school’s philosophy.
What Is Philosophy?

The educational philosopher Maxine Greene (1973) challenged
educators to “do philosophy.” By this she meant that we need to
take the risk of thinking about what we do when we teach and
what we mean when we talk of enabling others to learn. It also
means we need to become progressively more conscious of the
choices and commitments we make in our professional lives.
Greene also challenged educators to look at our presuppositions,
to examine critically the principles underlying what we think
and what we say as educators, and to confront the individual
within us. She acknowledged that we often have to ask and
answer painful questions when we “do philosophy.”
In his seminal book, The Courage to Teach, Parker Palmer
(2007) asserted that “though the academy claims to value
multiple modes of knowing, it honors only one—an ‘objective’
way of knowing that takes us into the ‘real’ world by taking us
‘out of ourselves’” (p. 18). He encouraged educators to
challenge this culture by bringing a more human, personal
perspective to the teaching–learning experience. Like Greene,
Palmer suggested that, to do this, educators must look inside so
that we can understand that “we teach who we are” (p. xi) and
so that we can appreciate that such insight is critical for
“authentic teaching, learning, and living” (p. ix).
Philosophy, then, is a way of framing questions that have to do
with what is presupposed, perceived, intuited, believed, and
known. It is a way of contemplating, examining, or thinking
about what is taken to be significant, valuable, or worthy of
commitment. Additionally, it is a way of becoming self-aware
and thinking of everyday experiences as opportunities to reflect,
contemplate, and exercise our curiosity so that questions are
posed about what we do and how we do it, usual practices are
challenged and not merely accepted as “the way things are,” and
positive change can occur. Indeed, 119each of us—as a
fundamental practice of being—must go beyond the reality we
confront, refuse to accept it as a given and, instead, view life as
a reality to be created.
These perspectives on “doing philosophy” focus primarily on

individuals—as human beings in general or as teachers in
particular—reflecting seriously on their beliefs and values.
There is no question that such reflection is critical and is to be
valued and encouraged. However, “doing philosophy” must also
be a group activity when one is involved in curriculum work. In
crafting a statement of philosophy for a school of nursing, the
beliefs and values of all faculty must be considered, addressed,
and incorporated as much as possible. In fact, the very process
of talking about one’s beliefs and values—while it may generate
heated debates—leads to a deeper understanding of what a
group truly accepts as guiding principles for all it does.
Philosophical Statements
A philosophy is essentially a narrative statement of values or
beliefs. It reflects broad principles or fundamental “isms” that
guide actions and decision making, and it expresses the
assumptions we make about people, situations, or goals. As
noted by Bevis in her seminal work (1989, p. 35), the
philosophy “provides the value system for ordering priorities
and selecting from among various data.”
In writing a philosophical statement, we must raise questions,
contemplate ideas, examine what it is we truly believe, become
self-aware, and probe what might be—and what should be. It
calls on us to think critically and deeply, forge ideas and ideals,
and become highly conscious of the phenomena and events in
the world.
We also must reflect on the mission, vision, and values of our
parent institution and of our school itself, as well as on the
values of our profession. Figure 7-1 illustrates how a school’s
statement of philosophy is related to but differs from these
other sources. A mission statement describes unique purposes
for which an institution or nursing unit exists: to improve the
health of the surrounding community, to advance scientific
understanding or contribute to the development of nursing
science, to prepare responsible citizens, or to graduate
individuals who will influence public policy to ensure access to
quality health care for all. A vision is an expression of what an

institution or nursing unit wants to be: the institution of choice
for highly qualified students wishing to make a positive
difference in our world; the leader in integrating innovative
technology in the preparation of nurses; or a center of synergy
for teaching, research, professional practice, and public service.
Institutions and schools of nursing often also articulate a set of
values that guide their operation: honesty and transparency,
serving the public good, excellence, innovation, or constantly
being open to change and transformation.
Figure 7-1 Interrelation of curricular elements.
As stated, a philosophy statement is the narrative that reflects
and integrates concepts expressed in the mission, vision, and
values of the institution or profession; it serves to guide the
actions and decisions of those involved in the organization.
Educational philosophy is a matter of “doing philosophy” with
respect to the educational enterprise as it engages the educator.
It involves becoming critically conscious of what is involved in
the complex teaching–learning relationship and what education
truly means. The following statements about education, many by
well-known individuals, provide examples of different
philosophical perspectives:
The secret of Education lies in respecting the pupil.
—Ralph Waldo Emerson
If the student is to grow, the teacher must also grow.
—Confucius
I think [education] refines you. I think some of us have rough
edges. Education is like sanding down a piece of wood and
putting the varnish to it.
—Suzanne Gordon (1991, p. 131)
The whole art of teaching is only the art of awakening the
natural curiosity of young minds for the purpose of satisfying it
afterwards.
—Anatole France
The teacher learns from the student just as the student learns
from the teacher with their encounters as examples of mutual

openness to each other’s needs.
—Nili Tabak, Livne Adi, and Mali Eherenfeld (2003, p. 251)
120
Philosophy as It Relates to Nursing Education
As noted earlier, “doing philosophy” must move from individual
work to group work when engaged in curriculum development,
implementation, and evaluation. Faculty need to reflect on their
own individual beliefs and values, share them with colleagues,
affirm points of agreement, and discuss points of disagreement.
Table 7-1 summarizes many of the philosophical perspectives
expressed through the years, and faculty are encouraged to
explore the meaning and implications of each as they engage in
developing, reviewing, or refining the philosophical
121statement that guides their work. A discussion of three basic
educational ideologies is presented here to point out how
differences might arise if each person on a faculty were to
approach education from her or his own belief system only.
Table 7-1
Summary of Philosophical Perspectives
Philosophical Perspective
Brief Description
Behaviorism
Education focuses on developing mental discipline, particularly
through memorization, drill, and recitation. Because learning is
systematic, sequential building on previous learning is
important.
Essentialism
Because knowledge is key, the goal of education is to transmit
and uphold the cultural heritage of the past.
Existentialism
The function of education is to help individuals explore reasons
for existence. Personal choice and commitment are crucial.
Hermeneutics
Because individuals are self-interpreting beings, uniquely
defined by personal beliefs, concerns, and experiences of life,
education must attend to the meaning of experiences for

learners.
Humanism
Education must provide for learner autonomy and respect their
dignity. It also must help individuals achieve self-actualization
by developing their full potential.
Idealism
Individuals desire to live in a perfect world of high ideals,
beauty, and art, and they search for ultimate truth. Education
assists in this search.
Postmodernism
Education challenges convention, values a high tolerance for
ambiguity, emphasizes diversity of culture and thought, and
encourages innovation and change.
Pragmatism
Truth is relative to an individual’s experience; therefore
education must provide for “real-world” experiences.
Progressivism
The role of learners is to make choices about what is important,
and the role of teachers is to facilitate their learning.
Realism
Education is designed to help learners understand the natural
laws that regulate all of nature.
Reconstructionism
Education embraces the social ideal of a democratic life, and
the school is viewed as the major vehicle for social change.
Adapted from Csokasy, J. (2009). Philosophical foundations of
the curriculum. In D. M. Billings & J. A. Halstead, Teaching in
nursing: A guide for faculty. St. Louis, MO: Saunders.
One basic educational ideology is that of romanticism (Jarvis,
1995). This perspective, which emerged in the 1960s, is highly
learner centered and asserts that what comes from within the
learner is most important. Within this ideological perspective,
one would construct an educational environment that is
permissive and freeing; promotes creativity and discovery;
allows each student’s inner abilities to unfold and grow; and
stresses the unique, the novel, and the personal. Bradshaw

asserted that “this ‘romantic’ educational philosophy underpins
current nurse education” (1998, p. 104); however, those who
acknowledge our current “content-laden curricula” in nursing
(Diekelmann, 2002; Diekelmann & Smythe, 2004; Giddens &
Brady, 2007; Tanner, 2010) would disagree and posit that,
although a “romantic” philosophy is embraced as an ideal, it is
not always evident in our day-to-day practices.
A second educational ideology, that of cultural transmission
(Bernstein, 1975), is more society- or culture-centered. Here the
emphasis is on transmitting bodies of information, rules, values,
and the culturally given (i.e., the beliefs and practices that are
central to our educational environments and our society in
general). One would expect an educational environment that is
framed within a cultural transmission perspective to be
structured, rigid, and controlled, with an emphasis on the
common and the already established.
The third major educational ideology has been called
progressivism (Dewey, 1944; Kohlberg & Mayer, 1972), where
the focus is oriented toward the future and the goal of education
is to nourish the learner’s natural interaction with the world.
Here the educational environment is designed to present
resolvable but genuine problems or conflicts that “force”
learners to think so that they can be effective later in life. The
total development of learners—not merely their cognitive or
intellectual abilities—is emphasized and enhanced.
Increasingly, education experts agree that development must be
an overarching paradigm of 122education, students must be
central to the educational enterprise, and education must be
designed to empower learners and help them fulfill their
potentials. Beliefs and values such as these surely would
influence expectations faculty express regarding students’ and
their own performance, the relationships between students and
teachers, how the curriculum is designed and implemented (see
Figure 7-1), and the kind of “evidence” that is gathered to
determine whether the curriculum has been successful and
effective.

There is no doubt that a statement of philosophy for a school of
nursing must address beliefs and values about education,
teaching, and learning. However, it also must address other
concepts that are critical to the practice of nursing, namely
human beings, society and the environment, health, and the
roles of nurses themselves. These major concepts have been
referred to as the metaparadigm of nursing, a concept first
introduced by Fawcett in 1984.
Central Concepts in a School of Nursing’s Philosophy
Several central concepts are typically contained within a
nursing school’s statement of philosophy about which faculty
communicate their beliefs and values. These concepts include
beliefs about human beings, the societal or environmental
context in which humans live and act, health, and nursing.
Faculty may also add additional concepts about phenomena they
hold to be particularly meaningful to the learning environment
they are creating within their programs.
In preparing or revising the school of nursing’s statement of
philosophy, faculty must articulate their beliefs and values
about human beings, including the individual patients for whom
nurses care, patients’ families, the communities in which
patients live and work, students, and fellow nurses and faculty.
It is inconsistent to express a belief that patients and families
want to be involved in making decisions that affect them and
then never give students an opportunity to make decisions that
will affect them. Likewise, it is admirable to talk about
respecting others, treating others with dignity, and valuing
differences among people, but when faculty then treat one
another in disrespectful ways or insist that everyone teach in the
same way and do exactly the same thing, the validity of those
expressed values must be questioned. Consider the following
statements about human beings that might be expressed in a
school’s philosophy, keeping in mind that human beings refers
to students, faculty, and administrators, as well as patients:
• Human beings are unique, complex, holistic individuals.
• Human beings have the inherent capacity for rational thinking,

self-actualization, and growth throughout the life cycle.
• Human beings engage in deliberate action to achieve goals.
• Human beings want and have the right to be involved in
making decisions that affect their lives.
• All human beings have strengths as well as weaknesses, and
they often need support and guidance to capitalize on those
strengths or to overcome or manage those weaknesses or
limitations.
• All human beings are to be respected and valued.
Faculty also need to reflect on their beliefs and values related to
society and environment, their effect on human beings, and the
ways in which individuals and groups can influence their
environments and society. The following statements may be
ones to consider as faculty write or refine the philosophy of
their school of nursing:
• Human beings interact in families, groups, and communities in
an interdependent manner.
• Individuals, families, and communities reflect unique and
diverse cultural, ethnic, experiential, and socioeconomic
backgrounds.
• Human beings determine societal goals, values, and ethical
systems.
• Society has responsibility for providing environments
conducive to maximizing the health and well being of its
members.
• Although human beings often must adapt to their
environments, the environment also adapts to them in reciprocal
ways.
Because the goal of nursing is to promote health and well being,
faculty must consider the values and beliefs they hold about
health. For example, the following statements express values
and beliefs about health that a faculty might consider:
• Health connotes a sense of wholeness or integrity.
• Health is a goal to be attained.
123
• Health is the energy that sustains life, allows an individual to

participate in a variety of human experiences, and supports
one’s ability to set and meet life goals.
• Health is a dynamic, complex state of being that human beings
use as a resource to achieve their life goals; it is therefore a
means to an end rather than an end in itself.
• Health can be promoted, maintained, or regained.
• Health is a right more than a privilege.
• All human beings must have access to quality health care.
Finally, it is critical for faculty to discuss their beliefs about
nurses and nursing because this is the essence of our programs.
In doing so, it may be important to reflect on the current and
evolving roles of the nurse, the purpose of nursing, the ways in
which nurses practice in collaboration with other health care
professionals, and how one’s identity as a nurse evolves. The
following statements may stimulate thinking about beliefs and
values related to nurses and nursing:
• Nursing is a human interactive process.
• The focus of nursing is to enhance human beings’ capacity to
take deliberate action for themselves and their dependent others
regarding goals for optimal wellness.
• Nursing is a practice discipline that requires the deliberate use
of specialized techniques and a broad range of scientific
knowledge to design, deliver, coordinate, and manage care for
complex individuals, families, groups, communities, and
populations.
• Nurses are scholars who practice with scientific competence,
intellectual maturity, and humanistic concern for others.
• The formation of one’s identity as a nurse requires deep self-
reflection, feedback from others, and a commitment to lifelong
learning.
• Nurses must be educated at the university level.
• Nurses must be prepared to provide leadership within their
practice settings and for the profession as a whole.
• Nurses collaborate with patients and other professionals as
equal yet unique members of the health care team.
• Nurses are accountable for their own practice.

Box 7-1 provides examples of actual statements of philosophy
regarding these components of the metaparadigm. These
examples illustrate the beliefs of various groups of faculty,
some of which may express vastly different perspectives and
some of which express essentially the same idea but through
different words.
Box 7-1
Examples of Statements of Philosophy from Current Schools of
Nursing
Clayton State University School of Nursing
We believe that nursing is a dynamic, challenging profession
that requires a synthesis of critical thinking skills and theory
based practice to provide care for individuals, families, and
communities experiencing a variety of developmental and
health–illness transitions. Caring, which is at the heart of the
nursing profession, involves the development of a committed,
nurturing relationship, characterized by attentiveness to others
and respect for their dignity, values, and culture. We believe
that nursing practice must reflect an understanding of and
respect for each individual and for human diversity.
Transitions involve a process of movement and change in
fundamental life patterns, which are manifested in all
individuals. Transitions cause changes in identities, roles,
relationships, abilities, and patterns of behavior. Outcomes of
transitional experiences are influenced by environmental factors
interacting with the individual’s perceptions, resources, and
state of well-being. Negotiating successful transitions depends
on the development of an effective relationship between the
nurse and client. This relationship is a highly reciprocal process
that affects both the client and nurse.
Clayton State University, School of Nursing, Morrow, GA.
Retrieved from
http://www.clayton.edu/health/Nursing/Philosophy
Villanova University College of Nursing
The Philosophy of the College of Nursing is in accord with the
Philosophy of Villanova University as stated in its Mission

Statement. While the Philosophy is rooted in the Catholic and
Augustinian heritage of the university, the College of Nursing is
welcoming and respectful of those from other faith traditions.
We recognize human beings as unique and created by God. The
faculty believes that human beings are physiological,
psychological, social and spiritual beings, endowed with
intellect, free will, and inherent dignity. Human beings have the
potential to direct, integrate, and/or adapt to their total
environment in order to meet their needs.
The faculty believes that education provides students with
opportunities to develop habits of critical, constructive thought
so that they can make discriminating judgments in their search
for truth. This type of intellectual development can best be
attained in a highly technologic teaching–learning environment
that fosters sharing of knowledge, skills, and attitudes as well
as scholarship toward the development of new knowledge. The
faculty and students comprise a community of learners with the
teacher as the facilitator and the students responsible for their
own learning.
Villanova University College of Nursing, Villanova, PA.
Retrieved from
https://www1.villanova.edu/villanova/nursing/about/mission/col
lege_philosophy.html
Duke University School of Nursing
Duke University School of Nursing is committed to achieving
distinction in research, education, and patient care predicated
on our beliefs regarding human beings, society and the
environment, health and health care delivery, nursing, and
teaching and learning.
Human Beings—We believe that the dignity of each human
being is to be respected and nurtured, and embracing our
diversity affirms, respects, and celebrates the uniqueness of
each person. We believe that each human being is a unique
expression of attributes, behaviors, and values which are
influenced by his or her environment, social norms, cultural
values, physical characteristics, experiences, religious beliefs,

and practices. We also believe that human beings exist in
relation to one another, including families, communities, and
populations
Teaching/Learning—We believe that our purpose is to develop
nurse leaders in practice, education, administration, and
research by focusing on students’ intellectual growth and
development as adults committed to high ethical standards and
full participation in their communities. We recognize that it is
the responsibility of all individuals to assume ownership of and
responsibility for ongoing learning and to continually refine the
skills that facilitate critical inquiry for lifelong learning.
Duke University School of Nursing promotes an intellectual
environment that is built on a commitment to free and open
inquiry and is a center of excellence for the promotion of
scholarship and advancement of nursing science, practice, and
education. We affirm that it is the responsibility of faculty to
create and nurture academic initiatives that strengthen our
engagement of real world issues by anticipating new models of
knowledge formation and applying knowledge to societal issues.
This, we believe, equips students with the necessary cognitive
skills, clinical reasoning, clinical imagination, professional
identity, and commitment to the values of the profession that
are necessary to function as effective and ethical nurse leaders
in situations that are underdetermined, contingent, and changing
over time.
Duke University School of Nursing, Durham, NC. Retrieved
from http://nursing.duke.edu/about/academic-philosophy
124
Purpose of a Statement of Philosophy
Given that “doing philosophy” is hard work, takes time, and
may lead to substantial debates among faculty, one may ask,
“Why bother?” Perhaps part of the answer to that question lies
in a statement made by Alexander Astin, a noted educational
scholar whose seminal study (1997) of more than 20,000
students, 25,000 faculty members, and 200 institutions helped
educators better understand who our students are; what is

important to them; what they value; what they think about
teachers; how they change and develop in college; and how
academic programs, faculty, student peer groups, and other
variables affect students’ development and college experiences.
Although Astin’s original research was completed nearly 20
years ago and focused on traditional-age students enrolled,
typically, on a full-time basis—thereby not fully reflecting
today’s student population—the following comment has
relevance for this discussion of why faculty need to “bother”
with philosophy: “The problems of strengthening and reforming
American higher education are fundamentally problems of
values” [emphasis added] (Astin, 1997, p. 127).
Engaging in serious discussions about beliefs and values—about
human beings, society and environment, health, nurses and
nursing, and education—challenges faculty to search for points
of congruence, brings to the surface points of incongruence or
difference, and highlights what is truly important to the group.
In a time when nursing faculty are struggling to minimize
content overload and focus more on core concepts, gaining
clarity about what is truly important can be helpful in deciding
“what to leave in and what to leave out” of the curriculum.
Such exercises also help faculty minimize or avoid what is often
referred to as the “hidden curriculum” (Adler et al., 2006;
D’eon et al., 2007; Gofton & Regehr, 2006; Smith, 2013) by
ensuring that faculty are fully aware of and committed to
upholding certain beliefs and values in how they 125interact
with and what they expect of students and one another. Such
agreement and consistency is likely to avoid having three
components to the curriculum: “what is planned for the
students, what is delivered to the students, and what the
students experience” (Prideaux, as cited in Ozolins et al., 2008,
p. 606). For example, the plan may be to help students think of
themselves as evolving scholars; what is delivered is little more
than content about the research process or evidence-based
practice; and what is experienced by students is minimal
discussion by faculty of their own scholarly activities and how

they think of themselves as scholars. When what is delivered to
and experienced by students does not match what was planned
for them, confusion can reign, due process can be challenged,
and the relationships between students and teachers can be
irreparably damaged. Thus having clear statements of values to
which all faculty agree to subscribe can serve a most practical,
as well as philosophical, purpose.
Developing or Refining the School of Nursing’s Statement of
Philosophy
Developing or refining the school’s statement of philosophy,
while important and valuable, is far from easy. It takes time and
effort and is not to be taken lightly. But just how does a group
of faculty go about developing a philosophical statement for the
school and getting “buy-in” on it? As expected, there are no
formulas or step-by-step guidelines on how to go about doing
this work, but some examples (Colley, 2012; Snyder, 2014;
Thistlethwaite et al., 2014) and suggestions for a process may
be helpful.
One approach to engaging in this work may include reflecting
on the nursing theories that have been developed to determine if
any of them capture the essence of faculty beliefs. For example,
if faculty are in agreement that human beings are self-
determining individuals who want to take responsibility for
their own health and need specific knowledge, skills, and
attitudes to do whatever is required to maintain, regain, or
improve their health, then Orem’s (1971) self-care nursing
model may be evident in that school’s statement of philosophy.
Likewise, Roy’s (1980) adaptation model may be reflected in
the philosophical statement of a school where the faculty
believe that a central challenge to individuals and families is to
adapt to their environments and circumstances, and that the role
of the nurse is to facilitate that adaptation. Finally, if the
concept of caring is essential to a third group of faculty, their
philosophy may clearly be congruent with Watson’s (2008)
theory of human caring.
Whether or not to acknowledge a single nursing theory in a

school’s statement of philosophy (and then use that theory to
develop the school’s conceptual framework, end-of-program
outcomes or competencies, and other curriculum elements) has
been debated in recent years. Those in favor of such an
approach argue that it provides students with a way to “think
nursing” and approach nursing situations in a way that clearly is
nursing-focused, not medical model–focused, and that provides
an opportunity to contribute to the ongoing development of the
theory and therefore the science of nursing. Those against such
an approach argue that it limits students’ thinking and engages
them with language and perspectives that are not likely to be
widely encountered in practice, thereby making it difficult for
graduates to communicate effectively with their nursing and
health care team colleagues. Obviously, there is no one right
answer to this debate. The key question to consider is whether
the concepts that are central to a theory—nursing or
otherwise—truly are congruent with the beliefs and values of
the majority of faculty, because that is what a statement of
philosophy must reflect.
The inductive approach can be most useful to faculty when
developing or refining their philosophical statement; rather than
selecting concepts from existing theories or policy statements or
other literature, the faculty themselves generate concepts to
include in the philosophy. For example, all faculty may be
asked to list no more than five bullet items that express what
they believe about each concept in the metaparadigm: human
beings, society and environment, health, nurses and nursing,
and education and teaching–learning. The responses in each
category could then be compiled and faculty—perhaps in small
groups—could then engage in an analysis of the items listed for
each. These working groups might be asked to note the
frequency with which specific ideas were mentioned, thereby
identifying those points where there is great agreement and
those where only one or a few faculty identified an idea. The
fact that only a single faculty 126member or few faculty
identify a particular belief or value, however, does not

necessarily mean that it should be discarded. It is possible that
other faculty simply did not think of that idea as they were
creating their own lists, or it is possible that other faculty did
identify the idea but did not include it because they were
limited to five bullet items. The compilation from each working
group could then be shared with the entire faculty. At this point,
a discussion about the meaning and significance of the
statements in each category could ensue, or faculty could be
asked to review each list, select the three to five statements they
believe are most critical to include in the philosophy, and then
engage in dialogue about why they selected those statements,
what those statements mean to individuals, and so on. A draft
statement of philosophy—one that has evolved from an
inductive, bottom-up process—could then be written by an
individual or small group and circulated to faculty for comment
and further discussion.
Another approach that might be used combines deduction—or
drawing on existing literature, standards, or policy documents—
with induction, or generating ideas “from the ground up” by
interviewing faculty. An individual faculty member—one who is
viewed as a leader in the group, who is respected and trusted by
her or his peers, who has good writing skills, and who is
knowledgeable about curriculum development—may be asked to
talk to faculty about their beliefs about human beings, society
and environment, and so on, and use that input to draft a
statement of philosophy that incorporates what faculty
expressed. This draft could then be circulated to all faculty for
comment, editing, and revision. The original writer would then
revise the statement based on feedback from colleagues and
present the new statement to the group for discussion and
dialogue. This back-and-forth process would continue until
there is consensus about what to include in the statement.
In either of these scenarios, or when a philosophical statement
already exists but is being reviewed for possible updating and
revision, “clickers”—simple online, anonymous surveys—can
be used to get a sense of faculty agreement or endorsement.

With this approach, each sentence in the draft (or existing)
philosophy is listed as a separate item and faculty are asked to
indicate the extent to which they agree (e.g., Strongly Agree,
Agree, Disagree, or Strongly Disagree). Instead of using the
entire sentence as the item to be responded to, it may be more
helpful to use phrases or major concepts within each sentence as
the item. Regardless of the degree of detail in each item, the
anonymous responses can then be compiled, the results shared
with the entire faculty, and discussions held to explore the
meaning of the data obtained.
Finally, the entire process—whether it involves starting from an
existing philosophy or creating a new one—can be prompted or
stimulated by the thinking of those outside the school of
nursing. For example, faculty may be assigned to review major
contemporary documents or reports—for example, the Carnegie
study (Benner et al., 2010), the Future of Nursing report
(Institute of Medicine, 2010), accreditation standards, or
published articles about employers’ assessment of what new
graduates can and cannot do. In reviewing those reports, faculty
might identify values that are expressed or implied, beliefs
about patients and nurses, or societal expectations related to
health, health care, and the role of the nurse. Those values and
beliefs could then be compiled and faculty asked to reflect on
the extent to which they are aligned with the beliefs of the
faculty. Through an iterative process such as one of those
described previously, the group could craft its own statement of
philosophy, one that has been informed by the larger context in
which the educational programs exist.
Regardless of the process used, it is critical that all faculty be
involved and that adequate time and safe environments be
provided for faculty to disagree, struggle, contemplate, rethink,
debate, and “do philosophy.” Ending the process prematurely is
not likely to be wise. It also is important to remember that this
is an iterative process that will continue, to some extent,
throughout all of the subsequent steps of curriculum
development. For example, the statement of philosophy may

have been endorsed and approved-in-concept by faculty, but as
various groups work on developing course syllabi, they may
generate questions about “what we really meant” by something
in the philosophy. Should this occur, it would be worthwhile to
revisit the philosophical statement and make revisions to it, if
such revisions will lead to greater clarity about its meaning.
127
The preceding discussion has focused exclusively on the role of
faculty in the creation or revision of the school’s philosophy. It
is assumed that school administrators (e.g., dean, program
chair) are faculty who also must be involved in this process.
Additionally, consideration should be given to including
students in dialogue about beliefs and values; however, in the
end, the final document must reflect what faculty believe and
are guided by regarding human beings, society and environment,
health, nurses and nursing, and education and teaching–
learning.
The final statement of philosophy should be clearly written,
internally consistent, and easily understood, and should give
clear direction for all that follows. It should be long enough to
clearly express the significant beliefs and values that guide
faculty actions but not excessively detailed, as expressions of
detail (rather than fundamental beliefs) often are more
congruent with the work that must be done in formulating the
conceptual framework, end-of-program outcomes or
competencies, and curriculum design. Later chapters explore all
of those subsequent curriculum development steps in detail (see
Figure 7-1), so only a few examples of how the philosophy
gives direction to the development, implementation, and
evaluation of the curriculum are offered here.
Implications of the Philosophical Statement for the Curriculum
If the statements included in the school of nursing’s philosophy
reflect what the faculty truly believe—and are not merely words
on a page to “get the task done”—then those values should be
evident in how the curriculum is designed, how it is
implemented, and how it is evaluated. Examples of this

influence are presented in Box 7-2 as if–then statements.
Box 7-2
Examples of If–Then Statements Regarding Implications of the
Philosophical Statement for the Development, Implementation,
and Evaluation of the Curriculum
If the philosophical statement says…
Then one would expect to see…
We believe that human beings should have choices regarding
what they do…
Free, unrestricted elective courses in the curriculum, or choice
among several courses to meet a degree requirement (e.g.,
English)
We believe that human beings engage in deliberate action to
achieve goals…
Opportunities throughout the curriculum for students to write
their own learning goals and collaborate with faculty or clinical
staff to design unique learning experiences to achieve those
goals
We believe that individuals reflect unique and diverse cultural,
ethnic, experiential, and socioeconomic backgrounds…
Face-to-face or virtual experiences with a wide variety of
patient populations and within communities having a range of
resources and challenges
We believe that health can be promoted, maintained, or
regained…
Equally distributed clinical learning experiences in wellness
settings, with patients and families who are managing chronic
illnesses, and in acute care settings
We believe that nurses are scholars who practice with scientific
competence and intellectual maturity…
Courses and learning experiences that expose students to the
concept of scholarship, what it means to be a scholar, and how
one develops and maintains scientific competence
We believe that nurses must be prepared to provide leadership
within their practice settings and for the profession as a
whole…

Courses and learning experiences that help students appreciate
the differences between leadership and management, study
nursing leaders, and reflect on their own path toward becoming
a leader
We believe that nurses collaborate with patients and other
professionals as equal yet unique members of the health care
team…
Face-to-face or virtual experiences where nursing students learn
with students preparing for other professional roles, dialogue
with or interview members of other health care professions, or
undertake projects that call for interprofessional collaboration
to meet the health needs of a patient population or community
We believe that the goal of teaching is to awaken the learner’s
natural curiosity…
Problem-based learning experiences where students must
identify what it is they need to know to address a problem, seek
out that information, judge its quality, ask questions about
established practices, and so on
We believe that education involves nurturing students and
pulling them forth to a new place…
A program evaluation plan that incorporates open forums with
students about the extent to which they feel nurtured, supported,
and challenged by faculty; dialogue with graduates about how
their educational experience changed them as human beings;
and surveys of students and alumni regarding the contributions
they have made in their practice settings and to the profession
It is hoped that these examples, combined with the detail
provided in subsequent chapters, reinforce the importance of the
philosophy. Faculty aim to establish positive relationships with
students, clinical partners, alumni, administrators, and each
other; one way to achieve that goal is to be clear about the
values we share and, more importantly, to “live” those values in
everything we say and do.
128
Summary

As noted earlier, “doing philosophy” is hard work. However, it
is important and valuable work that has implications for faculty
and our practice as teachers, as well as for our students.
“Doing philosophy” may prompt us to attend more deliberately
to affective domain learning and identity formation as we
design learning experiences and interact with students, a focus
that is likely to enhance their educational experience. It may
challenge us to ask new questions about our practice as teachers
and seek answers to those questions through rigorous
pedagogical research efforts, an effort that can contribute to the
development of the science of nursing education. It also may
direct us to seek out new teaching strategies and evaluation
methods that better facilitate student learning, an outcome that
may serve to maintain the joy in teaching as we see students
become excited about their formation as nurses.
One can conclude that the philosophical foundations of the
curriculum extend far beyond mere program designs and course
syllabi. Reflections on and clarity regarding those philosophical
foundations can help us better understand who we are and how
we can best help our students, our colleagues, and ourselves to
grow and continue to learn.
Reflecting on the evidence
1. Although faculty share a commitment to the values of the
profession, they are likely to have varied beliefs about the
implications of those and other values, particularly in relation
to how they “play out” in the educational arena. What effect can
such differences have on students? How can such differences be
resolved?
2. How can faculty “track” congruence of beliefs, values, and
significant concepts from mission, vision, and values to
philosophy to framework to end-of-program outcomes and
competencies and on through specific learning experiences that
are designed for students? How can they assess the congruence
of these beliefs and values with their own personal beliefs?
3. What are some signs that a “hidden curriculum” is operating
where faculty say one thing but do another, or where beliefs

expressed in the philosophy (e.g., nurses must be involved in
professional associations) are not evident in what students
experience (e.g., faculty never talk about their involvement in
professional associations)? What implications might such
signals have for reexamining the school’s philosophical
underpinnings?
129
References
Adler S.R., Hughes E.F., Scott R.B. Student “moles”: Revealing
the hidden curriculum. Medical Education. 2006;40:463–464.
Astin A.W. What matters in college? Four critical years
revisited. San Francisco, CA: Jossey-Bass; 1997.
Benner P., Leonard V., Day L., Sutphen M. Educating nurses: A
call for radical transformation. San Francisco, CA: Jossey-Bass;
2010.
Bernstein B. Class, codes and control: Volume III—towards a
theory of educational transmission. New York, NY: Routledge;
1975.
Bevis E.O. Curriculum building: A process. 3rd ed. New York:
National League for Nursing; 1989.
Bradshaw A. Defining “competency” in nursing (part II): An
analytic review. Journal of Clinical Nursing. 1998;7:103–111.
Colley S.L. Implementing as change to a learner-centered
philosophy in a school of nursing: Faculty perspectives. Nursing
Education Perspectives. 2012;33(4Z):229–233.
D’eon M., Lear N., Turner M., Jones C. Perils of the hidden
curriculum revisited. Medical Teacher. 2007;29:295–296.
Dewey J. Democracy and education: An introduction to the
philosophy of education. New York: The Free Press; 1944.
Diekelmann N. “Too much content…” Epistemologies’ grasp
and nursing education (Teacher Talk). Journal of Nursing
Education. 2002;41(11):469–470.
Diekelmann N., Smythe E. Covering content and the additive
curriculum: How can I use my time with students to best help
them learn what they need to know? (Teacher Talk). Journal of
Nursing Education. 2004;43(8):341–344.

Emerson E. The complete writings of Ralph Waldo Emerson. In:
Emerson E., ed. New York: Wm. H. Wise & Co; 1921.
Fawcett J. The metaparadigm of nursing: Present status and
future refinements. Image: The Journal of Nursing Scholarship.
1984;16(3):84–86.
France A. The crime of Sylvestre Bonnard translated by
Lafcadio Hearn in The works of Anatole France in an English
Translation (1920). London: J. Lane Publishers; 1894.
Giddens J.F., Brady D.P. Rescuing nursing education from
content saturation: The case for a concept-based curriculum.
Journal of Nursing Education. 2007;46(2):65–69.
Gofton W., Regehr G. What we don’t know we are teaching:
Unveiling the hidden curriculum. Clinical Orthopaedics and
Related Research. 2006;449:20–27.
Gordon S. Prisoners of men’s dreams: Striking out for a new
feminine future. Boston: Little, Brown; 1991.
Greene M. Teacher as stranger: Educational philosophy in a
modern age. Belmont, CA: Wadsworth; 1973.
Institute of Medicine. The future of nursing: Leading change,
advancing health. Washington, DC: The National Academies
Press; 2010.
Jarvis P. Adult and continuing education. London, UK:
Routledge; 1995.
Kohlberg L., Mayer R. Development as the aim of education.
Harvard Educational Review. 1972;42(2):449–496.
Orem D. Nursing: Concepts of practice. New York: McGraw-
Hill; 1971.
Ozolins I., Hall H., Peterson R. The student voice: Recognizing
the hidden and informal curriculum in medicine. Medical
Teacher. 2008;30:606–611.
Palmer P. The courage to teach: Exploring the inner landscape
of a teacher’s life. San Francisco, CA: Jossey-Bass; 2007.
Roy Sr. C. The Roy adaptation model. In: Riehl J.P., Roy C.,
eds. Conceptual models for nursing practice. Norwalk, CT:
Appleton, Century Crofts; 1980:179–188.
Smith B. Mentoring at-risk students through the hidden

curriculum of higher education. Lanham, MD: Lexington Books;
2013.
Snyder M. Emancipatory knowing: Empowering nursing
students toward reflection and action. Journal of Nursing
Education. 2014;53(2):65–69.
Tabak N., Adi I., Eherenfeld M. A philosophy underlying
excellence in teaching. Nursing Philosophy. 2003;4:249–254.
Tanner C.A. Transforming prelicensure nursing education:
Preparing the new nurse to meet emerging health care needs.
Nursing Education Perspectives. 2010;31(6):347–353.
Thistlethwaite J.E., Forman D., Matthews L.R., Rogers G.D.,
Steketee C., Yassine T. Competencies and frameworks in
interprofessional education: A comparative analysis. Academic
Medicine. 2014;89(6):1–7.
Watson J. Nursing: The philosophy and science of caring. Rev.
Ed. Boulder, CO: University Press of Colorado; 2008.
Instructor’s Resource Manual
For
Multinational Business Finance
Fourteenth Edition
David K. Eiteman
University of California, Los Angeles

Arthur I. Stonehill
Oregon State University and University of Hawaii at Manoa
Michael H. Moffett
Thunderbird School of Global Management
at Arizona State University
Copyright 2016 Pearson Education, Inc.
Vice President, Product Management: Donna Battista
Acquisitions Editor: Kate Fernandes
Program Manager: Kathryn Dinovo
Team Lead, Project Management: Jeff Holcomb
Project Manager: Meredith Gertz
Copyright © 2016, 2013, 2010 Pearson Education, Inc., or its
affiliates. All Rights Reserved.
Manufactured in the United States of America. 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
otherwise. For information regarding permissions, request
forms, and the appropriate contacts within the
Pearson Education Global Rights and Permissions department,
please visit
www.pearsoned.com/permissions/.
www.pearsonhighered.com
ISBN-13: 978-0-13-387987-2
ISBN-10: 0-13-387987-9
©2016 Pearson Education, Inc.
Contents
Chapter 1 Multinational Financial Management: Opportunities
and Challenges .......................... 1
Chapter 2 The International Monetary System
.............................................................................. 7
Chapter 3 The Balance of Payments
............................................................................................
12
Chapter 4 Financial Goals and Corporate Governance
................................................................ 20

Chapter 5 The Foreign Exchange Market
.................................................................................... 25
Chapter 6 International Parity Conditions
................................................................................... 31
Chapter 7 Foreign Currency Derivatives: Futures and Options
................................................... 38
Chapter 8 Interest Rate Risk and Swaps
...................................................................................... 43
Chapter 9 Foreign Exchange Rate Determination
....................................................................... 48
Chapter 10 Transaction Exposure
...............................................................................................
. 55
Chapter 11 Translation Exposure
...............................................................................................
.. 60
Chapter 12 Operating Exposure
...............................................................................................
..... 64
Chapter 13 The Global Cost and Availability of Capital
............................................................. 68
Chapter 14 Raising Equity and Debt Globally
............................................................................. 72
Chapter 15 Multinational Tax Management
................................................................................ 79

Chapter 16 International Trade Finance
....................................................................................... 85
Chapter 17 Foreign Direct Investment and Political Risk
........................................................... 89
Chapter 18 Multinational Capital Budgeting and Cross-Border
Acquisitions ........................... 101
© 2016 Pearson Education, Inc.
CHAPTER 1
MULTINATIONAL FINANCIAL MANAGEMENT:
OPPORTUNITIES AND CHALLENGES
1. Globalization Risks in Business. What are some of the risks
that come with the growing
globalization of business?
Exchange rates. The international monetary system, an eclectic
mix of floating and managed
fixed exchange rates, is constantly changing. For example, the
growth of the Chinese yuan is now
changing the global currency landscape.

Interest rates. Large fiscal deficits, including the current
eurozone crisis, plague most of the major
trading countries of the world, complicating fiscal and monetary
policies, and ultimately, interest
rates and exchange rates.
Many countries experience continuing balance of payments
imbalances, and in some cases,
dangerously large deficits and surpluses, all will inevitably
move exchange rates.
Ownership, control, and governance vary radically across the
world. The publicly traded
company is not the dominant global business organization—the
privately held or family-owned
business is the prevalent structure—and their goals and
measures of performance vary
dramatically.
Global capital markets that normally provide the means to
lower a firm’s cost of capital, and even
more critically, increase the availability of capital, have in
many ways shrunk in size and have
become less open and accessible to many of the world’s
organizations.
Financial globalization has resulted in the ebb and flow of

capital in and out of both industrial and
emerging markets, greatly complicating financial management
(Chapters 5 and 8).
2. Globalization and the MNE. The term globalization has
become widely used in recent years. How
would you define it?
Narayana Murthy’s quote is a good place to start any
discussion of globalization:
“I define globalization as producing where it is most cost-
effective, selling where it is most
profitable, and sourcing capital where it is cheapest, without
worrying about national
boundaries.”
Narayana Murthy, President and CEO, Infosys
3. Assets, Institutions, and Linkages. Which assets play the
most critical role in linking the major
institutions that make up the global financial marketplace?
The debt securities issued by governments. These low risk or
risk-free assets form the foundation for
the creation, trading, and pricing of other financial assets like
bank loans, corporate bonds, and
equities (stock). In recent years, a number of additional
securities have been created from the existing

2 Eiteman/Stonehill/Moffett | Multinational Business Finance,
14th Edition
securities—derivatives, whose value is based on market value
changes in the underlying securities.
The health and security of the global financial system relies on
the quality of these assets.
4. Currencies and Symbols. What technological change is even
changing the symbols we use in the
representation of different country currencies?
As currency trading has shifted from verbal telephone
conversations to electronic and digital trading,
currency symbols (many of which were not common across
alphabetic platforms, like the British
pound, £) have been replaced with the ISO-4217 codes, three-
letter currency codes like USD, EUR,
and GBP.
5. Eurocurrencies and LIBOR. Why have eurocurrencies and
LIBOR remained the centerpiece of the
global financial marketplace for so long?
Eurocurrencies and LIBOR (and there are LIBOR rates for all
eurocurrencies) reflect the “purest” of

market-driven currencies and instrument rates. They are largely
unregulated and, therefore, reflect
freely traded assets whose value is set by the daily global
marketplace.
6. Theory of Comparative Advantage. Define and explain the
theory of comparative advantage.
The theory of comparative advantage provides a basis for
explaining and justifying international trade
in a model world assumed to enjoy free trade, perfect
competition, no uncertainty, costless
information, and no government interference. The theory
contains the following features:
Exporters in Country A sell goods or services to unrelated
importers in Country B.
Firms in Country A specialize in making products that can be
produced relatively efficiently,
given Country A’s endowment of factors of production: that is,
land, labor, capital, and
technology. Firms in Country B do likewise, given the factors
of production found in Country B.
In this way, the total combined output of A and B is maximized.
Because the factors of production cannot be moved freely from
Country A to Country B, the
benefits of specialization are realized through international

trade.
The way the benefits of the extra production are shared
depends on the terms of trade, the ratio at
which quantities of the physical goods are traded. Each
country’s share is determined by supply
and demand in perfectly competitive markets in the two
countries. Neither Country A nor
Country B is worse off than before trade, and typically both are
better off, albeit perhaps
unequally.
7. Limitations of Comparative Advantage. Key to understanding
most theories is what they say and
what they don’t. Name four or five key limitations to the theory
of comparative advantage.
Although international trade might have approached the
comparative advantage model during the
nineteenth century, it certainly does not today, for the following
reasons:
Countries do not appear to specialize only in those products
that could be most efficiently
produced by that country’s particular factors of production.
Instead, governments interfere with
comparative advantage for a variety of economic and political
reasons, such as to achieve full
employment, economic development, national self-sufficiency
in defense-related industries, and

and Challenges 3
protection of an agricultural sector’s way of life. Government
interference takes the form of
tariffs, quotas, and other non-tariff restrictions.
At least two of the factors of production, capital and
technology, now flow directly and easily
between countries, rather than only indirectly through traded
goods and services. This direct flow
occurs between related subsidiaries and affiliates of
multinational firms, as well as between
unrelated firms via loans and license and management contracts.
Even labor flows between
countries, such as immigrants into the United States (legal and
illegal), immigrants within the
European Union and other unions.
Modern factors of production are more numerous than in this
simple model. Factors considered in
the location of production facilities worldwide include local and
managerial skills, a dependable
legal structure for settling contract disputes, research and
development competence, educational
levels of available workers, energy resources, consumer demand

for brand name goods, mineral
and raw material availability, access to capital, tax differentials,
supporting infrastructure (roads,
ports, communication facilities), and possibly others.
Although the terms of trade are ultimately determined by
supply and demand, the process by
which the terms are set is different from that visualized in
traditional trade theory. They are
determined partly by administered pricing in oligopolistic
markets.
Comparative advantage shifts over time as less developed
countries become more developed and
realize their latent opportunities. For example, during the past
150 years, comparative advantage
in producing cotton textiles has shifted from the United
Kingdom to the United States to Japan to
Hong Kong to Taiwan and to China.
The classical model of comparative advantage did not really
address certain other issues, such as
the effect of uncertainty and information costs, the role of
differentiated products in imperfectly
competitive markets, and economies of scale.
Nevertheless, although the world is a long way from the
classical trade model, the general principle of
comparative advantage is still valid. The closer the world gets

to true international specialization, the
more world production and consumption can be increased,
provided the problem of equitable
distribution of the benefits can be solved to the satisfaction of
consumers, producers, and political
leaders. Complete specialization, however, remains an
unrealistic limiting case, just as perfect
competition is a limiting case in microeconomic theory.
8. International Financial Management. What is different about
international financial management?
Multinational financial management requires an understanding
of cultural, historical, and institutional
differences, such as those affecting corporate governance.
Although both domestic firms and MNEs
are exposed to foreign exchange risks, MNEs alone face certain
unique risks, such as political risks,
that are not normally a threat to domestic operations.
MNEs also face other risks that can be classified as extensions
of domestic finance theory. For
example, the normal domestic approach to the cost of capital,
sourcing debt and equity, capital
budgeting, working capital management, taxation, and credit
analysis needs to be modified to
accommodate foreign complexities. Moreover, a number of
financial instruments that are used in
domestic financial management have been modified for use in
international financial management.
Examples are foreign currency options and futures, interest rate
and currency swaps, and letters of
credit.

14th Edition
9. Ganado’s Globalization. After reading the chapter’s
description of Ganado’s globalization process,
how would you explain the distinctions between international,
multinational, and global companies?
The difference in definitions for these three terms is subjective,
with different writers using different
terms at different times. No single definition can be considered
definitive, although as a general
matter the following probably reflect general usage.
International simply means that the company has some form of
business interest in more than one
country. That international business interest may be no more
than exporting and importing, or it may
include having branches or incorporated subsidiaries in other
countries. International trade is usually
the first step in becoming “international,” but the term also
encompasses foreign subsidiaries created
for the single purpose of marketing, distribution, or financing.
The term international is also used to
encompass what are defined as multinational and global in the
following two paragraphs.

Multinational is usually taken to mean a company that has
operating subsidiaries and performs a full
set of its major operations in a number of countries, i.e., in
“many nations.” “Operations” in this
context includes both manufacturing and selling, as well as
other corporate functions, and a
multinational company is often presumed to operate in a greater
number of countries than simply an
international company. A multinational company is presumed to
operate with each foreign unit
“standing on its own,” although that term does not preclude
specialization by country or supplying
parts from one country operation to another.
Global is a newer term that essentially means about the same as
“multinational,” i.e., operating
around the globe. Global has tended to replace other terms
because of its use by demonstrators at the
international meetings (“global forums?”) of the International
Monetary Fund and World Bank that
took place in Seattle in 1999 and Rome in 2001. Terrorist
attacks on the World Trade Center and the
Pentagon in 2001 led politicians to refer to the need to
eliminate “global terrorism.”
10. Ganado, the MNE. At what point in the globalization
process did Ganado become a multinational
enterprise (MNE)?
Ganado became a multinational enterprise (MNE) when it began

to establish foreign sales and service
subsidiaries, followed by creation of manufacturing operations
abroad or by licensing foreign firms to
produce and service Trident’s products. This multinational
phase usually follows the international
phase, which involved the import and/or export of goods and/or
services.
11. Role of Market Imperfections. What is the role of market
imperfections in the creation of
opportunities for the multinational firm?
MNEs strive to take advantage of imperfections in national
markets for products, factors of
production, and financial assets.
Imperfections in the market for products translate into market
opportunities for MNEs. Large
international firms are better able to exploit such competitive
factors as economies of scale,
managerial and technological expertise, product differentiation,
and financial strength than their
local competitors are.
MNEs thrive best in markets characterized by international
oligopolistic competition, where these
factors are particularly critical.

and Challenges 5
Once MNEs have established a physical presence abroad, they
are in a better position than purely
domestic firms are to identify and implement market
opportunities through their own internal
information network.
12. Why Go. What do firms become multinational?
1. Entry into new markets, not currently served by the firm,
which in turn allow the firm to grow
and possibly to acquire economies of scale
2. Acquisition of raw materials, not available elsewhere
3. Achievement of greater efficiency, by producing in countries
where one or more of the factors of
production are underpriced relative to other locations
4. Acquisition of knowledge and expertise centered primarily in
the foreign location
5. Location of the firms’ foreign operations in countries deemed
politically safe
13. Multinational Versus International. What is the difference
between an international firm and a

multinational firm?
A multinational firm goes beyond simply selling to or trading
with firms in foreign countries
(international), by expanding its intellectual capital and
acquiring a physical presence in foreign
countries. This allows the firm to expand and deepen its core
competitiveness and global reach to
more markets, customers, suppliers, and partners.
14. Ganado’s Phases. What are the main phases that Ganado
passed through as it evolved into a truly
global firm? What are the advantages and disadvantages of
each?
a. International trade. Two advantages are finding out if the
firms’ products are desired in the
foreign country and learning about the foreign market. Two
disadvantages are lack of control
over the final sale and service to final customer (many exports
are to distributors or other types of
firms that in turn resell to the final customer) and the
possibility that costs and thus final customer
sales prices will be greater than those of competitors that
manufacture locally.
b. Foreign sales and service offices. The greatest advantage is
that the firm has a physical presence
in the country, allowing it great control over sales and service

as well as allowing it to learn more
about the local market. The disadvantage is the final local sales
prices, based on home country
plus transportation costs, may be greater than competitors that
manufacture locally.
c. Licensing a foreign firm to manufacture and sell. The
advantages are that product costs are based
on local costs and that the local licensed firm has the knowledge
and expertise to operate
efficiently in the foreign country. The major disadvantages are
that the firm might lose control of
valuable proprietary technology and that the goals of the foreign
partner might differ from those
of the home country firm. Two common problems in the latter
category are whether the foreign
firm (that is manufacturing the product under license) is a
shareholder wealth or corporate wealth
maximizer, which in turn often leads to disagreements about
reinvesting earning to achieve
greater future growth versus making larger current dividends to
owners and payments to other
stakeholders.
d. Part ownership of a foreign, incorporated, subsidiary, i.e., a
joint venture. The advantages and
disadvantages are similar to those for licensing: Product costs
are based on local costs and that the
local joint owner presumably has the knowledge and expertise
to operate efficiently in the foreign

14th Edition
country. The major disadvantages are that the firm might lose
control of valuable proprietary
technology to its joint venture partner, and that the goals of the
foreign owners might differ from
those of the home country firm.
e. Direct ownership of a foreign, incorporated, subsidiary. If
fully owned, the advantage is that the
foreign operations may be fully integrated into the global
activities of the parent firm, with
products resold to other units in the global corporate family
without questions as to fair transfer
prices or too great specialization. (Example: the Ford
transmission factory in Spain is of little use
as a self-standing operation; it depends on its integration into
Ford’s European operations.) The
disadvantage is that the firm may come to be identified as a
“foreign exploiter” because
politicians find it advantageous to attack foreign-owned
businesses.
15. Financial Globalization. How do the motivations of
individuals, both inside and outside the
organization or business, define the limits of financial
globalization?

If influential insiders in corporations and sovereign states
continue to pursue the increase in firm
value, there will be a definite and continuing growth in
financial globalization. But if these same
influential insiders pursue their own personal agendas, which
may increase their personal power,
influence, or wealth, then capital will not flow into these
sovereign states and corporations. The result
is the growth of financial inefficiency and the segmentation of
globalization outcomes creating
winners and losers.
The three fundamental elements—financial theory, global
business, management beliefs and
actions—combine to present either the problem or the solution
to the growing debate over the benefits
of globalization to countries and cultures worldwide.
CHAPTER 2
THE INTERNATIONAL MONETARY SYSTEM
1. The Rules of the Game. Under the gold standard, all national
governments promised to follow the

“rules of the game.” What did this mean?
A country’s money supply was limited to the amount of gold
held by its central bank or treasury. For
example, if a country had 1,000,000 ounces of gold and its fixed
rate of exchange was 100 local
currency units per ounce of gold, that country could have
100,000,000 local currency units
outstanding. Any change in its holdings of gold needed to be
matched by a change in the number of
local currency units outstanding.
2. Defending a Fixed Exchange Rate. What did it mean under
the gold standard to “defend a fixed
exchange rate,” and what did this imply about a country’s
money supply?
Under the gold standard, a country’s central bank was
responsible for preserving the exchange value
of the country’s currency by being willing and able to exchange
its currency for gold reserves upon
the demand by a foreign central bank. This required the country
to restrict the rate of growth in its
money supply to a rate that would prevent inflationary forces
from undermining the country’s own
currency value.
3. Bretton Woods. What was the foundation of the Bretton
Woods international monetary system, and
why did it eventually fail?

Bretton Woods, the fixed exchange rate regime of 1945–73,
failed because of widely diverging
national monetary and fiscal policies, differential rates of
inflation, and various unexpected external
shocks. The U.S. dollar was the main reserve currency held by
central banks and was the key to the
web of exchange rate values. The United States ran persistent
and growing deficits in its balance of
payments requiring a heavy outflow of dollars to finance the
deficits. Eventually the heavy overhang
of dollars held by foreigners forced the United States to devalue
the dollar because it was no longer
able to guarantee conversion of dollars into its diminishing
store of gold.
4. Technical Float. What specifically does a floating rate of
exchange mean? What is the role of
government?
A truly floating currency value means that the government does
not set the currency’s value or
intervene in the marketplace, allowing the supply and demand
of the market for its currency to
determine the exchange value.
5. Fixed versus Flexible. What are the advantages and
disadvantages of fixed exchange rates?
Fixed rates provide stability in international prices for the

conduct of trade. Stable prices aid in
the growth of international trade and lessen risks for all
businesses.
Fixed exchange rates are inherently anti-inflationary, requiring
the country to follow restrictive
monetary and fiscal policies. This restrictiveness, however, can
often be a burden to a country
14th Edition
wishing to pursue policies that alleviate continuing internal
economic problems, such as high
unemployment or slow economic growth.
Fixed exchange rate regimes necessitate that central banks
maintain large quantities of
international reserves (hard currencies and gold) for use in the
occasional defense of the fixed
rate. As international currency markets have grown rapidly in
size and volume, increasing reserve
holdings has become a significant burden to many nations.
Fixed rates, once in place, may be maintained at rates that are
inconsistent with economic

fundamentals. As the structure of a nation’s economy changes,
and as its trade relationships and
balances evolve, the exchange rate itself should change.
Flexible exchange rates allow this to
happen gradually and efficiently, but fixed rates must be
changed administratively—usually too
late, too highly publicized, and at too large a one-time cost to
the nation’s economic health.
6. De facto and de jure. What do the terms de facto and de jure
mean in reference to the International
Monetary Fund’s use of the terms?
A country’s actual exchange rate practices is the de facto
system. This may or may not be what the
“official” or publicly and officially system commitment, the de
jure system.
7. Crawling Peg. How does a crawling peg fundamentally differ
from a pegged exchange rate?
In a crawling peg system, the government will make occasional
small adjustments in its fixed rate of
exchange in response to changes in a variety of quantitative
indicators, such as inflation rates or
economic growth. In a truly pegged exchange rate regime, no
such changes or adjustments are made
to the official fixed rate of exchange.
8. Global Eclectic. What does it mean to say the international

monetary system today is a global
eclectic?
The current global market in currency is dominated by two
major currencies, the U.S. dollar and the
European euro, and after that, a multitude of systems,
arrangements, currency areas, and zones.
9. The Impossible Trinity. Explain what is meant by the term
impossible trinity and why it is in fact
“impossible.”
Countries with floating rate regimes can maintain monetary
independence and financial
integration but must sacrifice exchange rate stability.
Countries with tight control over capital inflows and outflows
can retain their monetary
independence and stable exchange rate but surrender being
integrated with the world’s capital
markets.
Countries that maintain exchange rate stability by having fixed
rates give up the ability to have an
independent monetary policy.
10. The Euro. Why is the formation and use of the euro
considered to be of such a great
accomplishment? Was it really needed? Has it been successful?

The creation of the euro required a near-Herculean effort to
merge the monetary institutions of
separate sovereign states. This required highly disparate
cultures and countries to agree to combine,
Chapter 2 The International Monetary System 9
giving up a large part of what defines an independent state.
Member states were so highly integrated
in terms of trade and commerce that maintaining separate
currencies and monetary policies was an
increasing burden on both business and consumers, adding cost
and complexity, which added sizable
burdens to global competitiveness. The euro is widely
considered to have been extremely successful
since its launch.
11. Currency Board or Dollarization. Fixed exchange rate
regimes are sometimes implemented through
a currency board (Hong Kong) or dollarization (Ecuador). What
is the difference between the two
approaches?
In a currency board arrangement, the country issues its own
currency but that currency is backed
100% by foreign exchange holdings of a hard foreign

currency—usually the U.S. dollar. In
dollarization, the country abolishes its own currency and uses a
foreign currency, such as the U.S.
dollar, for all domestic transactions.
12. Argentine Currency Board. How did the Argentine currency
board function from 1991 to January
2002, and why did it collapse?
Argentina’s currency board exchange regime of fixing the value
of its peso on a one-to-one basis with
the U.S. dollar ended for several reasons:
As the U.S. dollar strengthened against other major world
currencies, including the euro, during
the 1990s, Argentine export prices rose vis-à-vis the currencies
of its major trading partners.
This problem was aggravated by the devaluation of the
Brazilian real in the late 1990s.
These two problems, in turn, led to continued trade deficits and
a loss of foreign exchange
reserves by the Argentine central bank.
This problem, in turn, led Argentine residents to flee from the
peso and into the dollar, further
worsening Argentina’s ability to maintain its one-to-one peg.

13. Special Drawing Rights. What are Special Drawing Rights?
The Special Drawing Right (SDR) is an international reserve
asset created by the IMF to supplement
existing foreign exchange reserves. It serves as a unit of
account for the IMF and other international
and regional organizations and is also the base against which
some countries peg the exchange rate
for their currencies.
Defined initially in terms of a fixed quantity of gold, the SDR
has been redefined several times. It is
currently the weighted value of currencies of the five IMF
members that have the largest exports of
goods and services. Individual countries hold SDRs in the form
of deposits in the IMF. These
holdings are part of each country’s international monetary
reserves, along with official holdings of
gold, foreign exchange, and its reserve position at the IMF.
Members may settle transactions among
themselves by transferring SDRs.
14. The Ideal Currency. What are the attributes of the ideal
currency?
If the ideal currency existed in today’s world, it would possess
three attributes, often referred to as the
Impossible Trinity:

14th Edition
1. Exchange rate stability. The value of the currency would be
fixed in relationship to other major
currencies so that traders and investors could be relatively
certain of the foreign exchange value
of each currency in the present and into the near future.
2. Full financial integration. Complete freedom of monetary
flows would be allowed; thus, traders
and investors could willingly and easily move funds from one
country and currency to another in
response to perceived economic opportunities or risks.
3. Monetary independence. Domestic monetary and interest rate
policies would be set by each
individual country to pursue desired national economic policies,
especially as they might relate to
limiting inflation, combating recessions, and fostering
prosperity and full employment.
The reason that it is termed the Impossible Trinity is that a
country must give up one of the three goals
described by the sides of the triangle, monetary independence,
exchange rate stability, or full financial

integration. The forces of economics do not allow the
simultaneous achievement of all three.
15. Emerging Market Regimes. High capital mobility is forcing
emerging market nations to choose
between free-floating regimes and currency board or
dollarization regimes. What are the main
outcomes of each of these regimes from the perspective of
emerging market nations?
Highly restrictive regimes like currency boards and
dollarization require a country to give up the
majority of its discretionary ability over its own currency’s
value. Currency boards, like that used by
Argentina in the 1990s, restricted the rate of growth in the
country’s monetary policy in order to
preserve a fixed exchange rate regime. This proved to be a very
high price for Argentine society to
pay and, in the end, could not be maintained. Dollarization, an
even more radical extreme in the
adoption of another country’s currency for all exchange,
removes one of a government’s major
attributes of sovereignty.
A free-floating rate of exchange is, however, in many ways not
that different from the highly
restrictive choices just mentioned. In a free-floating regime, the
government allows the foreign
currency markets to determine the currency’s value, although
the government does maintain
sovereignty over its own monetary policy, which in turn has
significant direct impacts on the

currency’s value.
16. Globalizing the Yuan. What are the major changes and
developments that must occur for the
Chinese yuan to be considered “globalized”?
First, the yuan must become readily accessible for trade
transaction purposes. This is the fundamental
and historical use of currency. Secondly, it then needs to mature
toward a currency easily and openly
useable for international investment purposes. The third and
final stage of currency globalization is
when the currency itself takes on a role as a reserve currency,
currency held by central banks of other
countries as a store of value and a medium of exchange for their
own currencies.
17. Triffin Dilemma. What is the Triffin Dilemma? How does it
apply to the development of the Chinese
yuan as a true global currency?
The Triffin Dilemma is the potential conflict in objectives that
may arise between domestic monetary
and currency policy objectives and external or international
policy objectives when a country’s
currency is used as a reserve currency. Domestic monetary and
economic policies may on occasion
require both contraction and the creation of a current account
surplus (balance on trade surplus).

Chapter 2 The International Monetary System 11
18. China and the Impossible Trinity. What choices do you
believe that China will make in terms of
the Impossible Trinity as it continues to develop global trading
and use of the Chinese yuan?
This is purely speculative opinion, but many believe China will
continue to move the yuan toward
globalization rapidly. As Chinese financial institutions and
policies become more mature, and policies
more consistent with those of other major country financial
markets, the yuan will grow as a medium
of exchange for both commercial trade and capital investment
transactions. The gradual opening of
the Chinese economy to foreign investment is a critical
component of this process.
CHAPTER 3
THE BALANCE OF PAYMENTS

1. Balance of Payments Defined. What is the balance of
payments?
The measurement of all international economic transactions
between the residents of a country and
foreign residents is called the balance of payments (BOP).
2. BOP Data. What institution provides the primary source of
similar statistics for balance of payments
and economic performance worldwide?
The primary source of similar statistics for balance of payments
and economic performance
worldwide is the International Monetary Fund, Balance of
Payments Statistics.
3. Importance of BOP. Business managers and investors need
BOP data to anticipate changes in host
country economic policies that might be driven by BOP events.
From the perspective of business
managers and investors, list three specific signals that a
country’s BOP data can provide.
The BOP is an important indicator of pressure on a country’s
foreign exchange rate and thus on
the potential for a firm trading with or investing in that country

to experience foreign exchange
gains or losses. Changes in the BOP may predict the imposition
or removal of foreign exchange
controls.
Changes in a country’s BOP may signal the imposition or
removal of controls over payment of
dividends and interest, license fees, royalty fees, or other cash
disbursements to foreign firms or
investors.
The BOP helps to forecast a country’s market potential,
especially in the short run. A country
experiencing a serious trade deficit is not likely to expand
imports as it would if running a
surplus. It may, however, welcome investments that increase its
exports.
4. Flow Statement. What does it mean to describe the balance of
payments as a flow statement?
The BOP is often misunderstood because many people infer
from its name that it is a balance sheet,
whereas in fact it is a cash flow statement. By recording all
international transactions over a period
such as a year, the BOP tracks the continuing flows of
purchases and payments between a country
and all other countries. It does not add up the value of all assets
and liabilities of a country on a
specific date like a balance sheet does for an individual firm.

5. Economic Activity. What are the two main types of economic
activity measured by a country’s
BOP?
Current transactions having cash flows completed within one
year, such as for the import or
export of goods and services.
Capital and financial transactions, in which investors acquire
ownership of a foreign asset, such
as a company, or a portfolio investment, such as bonds or shares
of common stock.
Chapter 3 The Balance of Payments 13
6. Balance. Why does the BOP always “balance”?
The algebraic sum of all flows accounted for in the current
account and the capital and financial
accounts should, in theory, equal changes in a country’s
monetary reserves. Because data for the
balance of payments are collected on a single entry basis and
some data are missed, the equalization

usually does not occur. The imbalance is plugged by an entry
called “errors and omissions” that
makes the accounts balance.
7. BOP Accounting. If the BOP were viewed as an accounting
statement, would it be a balance sheet of
the country’s wealth, an income statement of the country’s
earnings, or a funds flow statement of
money into and out of the country?
A country’s balance of payments is similar to a corporation’s
funds flow statement in that the balance
of payments records events that cause the receipt (earnings) and
disbursement (expenditures) into and
out of the country.
8. Current Account. What are the main component accounts of
the current account? Give one debit and
one credit example for each component account for the United
States.
The main components and possible examples are:
Trade in goods
Debit: U.S. firm purchases German machine tools.
Credit: Singapore Air Lines buys a Boeing jet.
Trade in services
Debit: An American takes a cruise on a Dutch cruise line.
Credit: The Brazilian tourist agency places an ad in The New
York Times.

Income payments and receipts
Debit: The U.S. subsidiary of a Taiwan computer manufacturer
pays dividends to its parent.
Credit: A British company pays the salary of its executive
stationed in New York.
Unilateral current transactions
Debit: The U.S.-based International Rescue Committee pays
for an American working on the
Afghan border.
Credit: A Spanish company pays tuition for an employee to
study for an MBA in the United
States.
9. Real versus Financial Assets. What is the difference between
a “real” asset and a “financial” asset?
Real assets are goods (merchandise) and useful services.
Financial assets are financial claims, such as
shares of stock or bonds.
10. Direct versus Portfolio Investments. What is the difference
between a direct foreign investment and
a portfolio foreign investment? Give an example of each. Which
type of investment is a multinational
industrial company more likely to make?
A direct investment is made with the intent that the investor
will have a degree of control over the

asset acquired. Typical examples are the building of a factory in
a foreign country by the subsidiary
14th Edition
of a multinational enterprise or the acquisition of more than
10% of the voting shares of a foreign
corporation. A portfolio investment is the purchase of less than
10% of the voting shares of a foreign
corporation or the purchase of debt instruments. Multinational
enterprises are more likely to engage in
direct foreign investment than in portfolio investment.
11. Net International Investment Position. What is a country’s
net international investment position,
and how does it differ from the balance of payments?
The net international investment position (NIIP) of a country is
an annual measure of the assets
owned abroad by its citizens, its companies, and its government,
less the assets owned by foreigners
public and private in their country. Whereas a country’s balance
of payments is often described as a
country’s international cash flow statement, the NIIP may be
interpreted as the country’s
international balance sheet. NIIP is a country’s stock of foreign
assets minus its stock of foreign

liabilities.
12. The Financial Account. What are the primary sub-
components of the financial account?
Analytically, what would cause net deficits or surpluses in these
individual components?
The main components and possible examples follow:
Direct investment
Debit: Ford Motor Company builds a factory in Australia.
Credit: Ford Motor Company sells its factory in Britain to
British investors.
Portfolio investment
Debit: An American buys shares of stock of a European food
chain on the Frankfurt Stock
Exchange.
Credit: The government of Korea buys U.S. treasury bills to
hold as part of its foreign exchange
reserves.
Net financial derivatives
Debit: A U.S. firm purchases a financial derivative, like a
currency swap, in London
Credit: A U.S. firm sells a financial derivative, like a forward
contract on the dollar versus the
pound, to a London buyer

Other investment.
Debit: A U.S. firm deposits $1 million in a bank balance in
London.
Credit: A U.S. firm generates an account receivable for
exports to Canada.
13. Classifying Transactions. Classify the following as a
transaction reported in a sub-component of the
current account or the capital and financial accounts of the two
countries involved:
a. A U.S. food chain imports wine from Chile. Debit to U.S.
goods part of current account, credit to
Chilean goods part of current account.
b. A U.S. resident purchases a euro-denominated bond from a
German company. Debit to U.S.
portfolio part of financial account; credit to German portfolio of
financial account.
c. Singaporean parents pay for their daughter to study at a U.S.
university. Credit to U.S. current
transfers in current account; debit to Singapore current transfers
in current account.

d. A U.S. university gives a tuition grant to a foreign student
from Singapore. If the student is
already in the United States, no entry will appear in the balance
of payments because payment is
between U.S. residents. (A student already in the United States
becomes a resident for balance of
payments purposes.)
e. A British Company imports Spanish oranges, paying with
eurodollars on deposit in London. A
debit to the goods part of Britain’s current account; a credit to
the goods part of Spain’s current
account.
f. The Spanish orchard deposits half the proceeds in a
eurodollar account in London. No recording
in the U.S. balance of payments, as the transaction was between
foreigners using dollars already
deposited abroad. A debit to the income receipts/payments of
the British current account; a credit
to the income receipts/payments of the Spanish current account.
g. A London-based insurance company buys U.S. corporate
bonds for its investment portfolio. A
debit to the portfolio investment section of the British financial
accounts; a credit to the portfolio
investment section of the U.S. balance of payments.

h. An American multinational enterprise buys insurance from a
London insurance broker. A debit to
the services part of the U.S. current account; a credit to the
services part of the British current
account.
i. A London insurance firm pays for losses incurred in the
United States because of an international
terrorist attack. A debit to the services part of the British
current account; a credit to the services
part of the U.S. current account.
j. Cathay Pacific Airlines buys jet fuel at Los Angeles
International Airport so it can fly the return
segment of a flight back to Hong Kong. Hong Kong keeps its
balance of payments separate from
those of the People’s Republic of China. Hence a debit to the
goods part of Hong Kong’s current
account; a credit to the goods part of the U.S. current account.
k. A California-based mutual fund buys shares of stock on the
Tokyo and London stock exchanges.
A debit to the portfolio investment section of the U.S. financial
account; a credit to the portfolio
investment section of the Japanese and British financial
accounts.
l. The U.S. army buys food for its troops in South Asia from

vendors in Thailand. A debit to the
goods part of the U.S. current account; a credit to the goods part
of the Thai current account.
m. A Yale graduate gets a job with the International Committee
of the Red Cross working in Bosnia
and is paid in Swiss francs. A debit to the income part of the
Swiss current account; a credit to the
income part of the Bosnia current account. This assumes the
Yale graduate spends her earnings
within Bosnia; should she deposit the sum in the United States,
then the credit would be to the
income part of the U.S. current account.
n. The Russian government hires a Dutch salvage firm to raise
a sunken submarine. A debit to the
service part of Russia’s current account; a credit to the service
part of the Netherlands’s current
account.
o. A Colombian drug cartel smuggles cocaine into the United
States, receives a suitcase of cash, and
flies back to Colombia with that cash. This would not get
captured in the goods part of the U.S. or
Colombian current accounts. Assuming the cash was
“laundered” appropriately, from the point of

14th Edition
view of the smugglers, bank accounts in the United States or
somewhere else (probably not
Colombia, possibly Switzerland) would be credited. This
imbalance would end up in the errors
and omissions part of the U.S. balance of payments.
p. The U.S. government pays the salary of a Foreign Service
Officer working in the U.S. embassy in
Beirut. Diplomats serving in a foreign country are regarded as
residents of their home country, so
this payment would not be recorded in any balance of payments
accounts. If or when the diplomat
spent the money in Beirut, at that time a debit should be
incurred in the goods or services part of
the U.S. current account and a contrary entry in the Lebanon
balance of payments. It is doubtful
that the goods or services transaction would get reported or
recorded, although on a net basis
changes in bank balances would reflect half of the transaction.
q. A Norwegian shipping firm pays U.S. dollars to the Egyptian
government for passage of a ship
through the Suez Canal. If the Norwegian firm paid with dollar
balances held in the United States
and the Suez Canal Authority of Egypt redeposited the proceeds
in the United States, no entry
would appear in the U.S. balance of payments. Norway would

debit a purchase of services, and
Egypt would credit a sale of services.
r. A German automobile firm pays the salary of its executive
working for a subsidiary in Detroit.
Germany would record a debit in the income payments/receipts
in its current account; the U.S.
would record a credit in the income payments/receipts in its
current account.
s. An American tourist pays for a hotel in Paris with his
American Express card. A debit would be
recorded in the services part of the U.S. current account; a
credit would be recorded in the
services part of the French current account.
t. A French tourist from the provinces pays for a hotel in Paris
with his American Express card. A
French resident most likely has a French-issued credit card,
issued by the French subsidiary of
American Express. In this instance, no entry would appear in
either country’s balance of
payments. If, later, the French subsidiary of American Express
paid a dividend back to the United
States, that would be recorded in the income part of the current
accounts.
u. A U.S. professor goes abroad for a year and lives on a
Fulbright grant. The current transfers

section of the U.S. current account would be debited for the
salary paid to a foreign resident.
(Even though an American, the professor is a foreign resident
during the time he lives abroad.)
The current transfers section of the host country’s current
account would be credited.
14. The Balance. What are the main summary statements of the
balance of payments accounts, and what
do they measure?
The balance on goods (also called the balance of trade)
measures the balance on imports and
exports of merchandise.
The balance on current account expands the balance on goods
to include receipts and expenses
for services, income flows, and unilateral transfers.
The basic balance measures all of the international transactions
(current, capital, and financial)
that come about because of market forces,that is, the balance
resulting from all decisions made
for private motives. (This includes international operating
expenses of the government.)

The overall balance (also called the official settlements
balance) is the total change in a country’s
foreign exchange reserves caused by the basic balance plus any
governmental action to influence
foreign exchange reserves.
15. Twin Surpluses. Why is China’s twin surpluses—a surplus
in both the current and financial
accounts—considered unusual?
China’s surpluses in both the current and financial accounts—
termed the twin surplus in the business
press—is highly unusual. Ordinarily, countries experiencing
large current account deficits fund these
deficits through equally large surpluses in the financial account,
and vice versa.
China has experienced a massive current account surplus and a
sometimes sizable financial account
surplus simultaneously. This is rare and an indicator of just how
exceptional the growth of the
Chinese economy has been. Although current account surpluses
of this magnitude would ordinarily
create a financial account deficit, the positive prospects of the
Chinese economy have drawn such
massive capital inflows into China in recent years that the

1187Philosophical Foundations of the CurriculumTheresa M. T.docx

1187Philosophical Foundations of the CurriculumTheresa M. T.docx

Recommended

Recommended

More Related Content

Similar to 1187Philosophical Foundations of the CurriculumTheresa M. T.docx

Similar to 1187Philosophical Foundations of the CurriculumTheresa M. T.docx (20)

More from aulasnilda

More from aulasnilda (20)

Recently uploaded

Recently uploaded (20)

1187Philosophical Foundations of the CurriculumTheresa M. T.docx