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MBA 713 - Chapter 07

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MBA 713 - Chapter 07

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MBA 713 - Chapter 07

  1. 1. Chapter 7 Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall Chapter 7 - 1 International Monetary System and the Balance of Payments
  2. 2. Learning Objectives • Study the international monetary system in international trade and investment • Explain the evolution and functioning of the gold standard • Summarize the role of the World Bank Group and the IMF in the post—WWII international monetary system set up at Breton Woods Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall Chapter 7 - 2
  3. 3. Learning Objectives • Explore how the flexible exchange rate system evolved • Describe the function and structure of the balance of payments accounting system • Differentiate among the definitions of a balance of payments surplus and deficit Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall Chapter 7 - 3
  4. 4. History of the International Monetary System Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall Chapter 7 - 4
  5. 5. Functions of the IMS Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall Chapter 7 - 5 Value and Exchange Currency Balance of Payments System
  6. 6. Summary of Discussion Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall Chapter 7 - 6
  7. 7. Evolution and Functioning of the Gold Standard Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall Chapter 7 - 7
  8. 8. The Gold Standard Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall Chapter 7 - 8 Fixed Exchange Rate System Sterling- Based Gold Standard
  9. 9. Collapse of Gold Standard Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall Chapter 7 - 9 •World War I •Great Depression •World War II
  10. 10. Summary of Discussion Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall Chapter 7 - 10
  11. 11. Role of the World Bank and the IMF in Post-WWII International Monetary System Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall Chapter 7 - 11
  12. 12. Bretton Woods Era Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall Chapter 7 - 12 Representatives of 44 Countries Met in 1945 Avoid Conditions That Caused WWII Promote Global Peace and Prosperity
  13. 13. Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall Chapter 7 - The International Bank for Reconstruction and Development 13 Reconstruct Europe Assist Developing Countries Official Name of the World Bank
  14. 14. The World Bank Group Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall Chapter 7 - 14 International Bank for Reconstruction and Development (IBRD) Multilateral Investment Guaranty Agency International Development Association International Finance Corporation
  15. 15. 1. Boost international monetary cooperation 2. Facilitate international trade 3. Stabilize exchange arrangements 4. Foster multilateral payment system 5. Build confidence of members 6. Adjust international balance of payments Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall Chapter 7 - 15 International Monetary Fund
  16. 16. IMF Membership Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall Chapter 7 - 16 The Quota System Borrowing Power Official Reserves Voting Power
  17. 17. Dollar-Based Gold Standard Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall Chapter 7 - 17 Fixed Exchange Rate Adjustable Peg System
  18. 18. Challenges to the Bretton Woods System Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall Chapter 7 - 18 Value of British Pound (1967) Value of French Franc (1969)
  19. 19. The Triffin Paradox Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall Chapter 7 - 19 High International Liquidity Low International LiquidityLess More Less More OwnDollars SellDollars
  20. 20. The End of the Bretton Woods System Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall Chapter 7 - 20 Special Drawing Rights (1967) President Nixon’s Speech (1971)
  21. 21. Summary of Discussion Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall Chapter 7 - 21
  22. 22. Performance of the IMF Since 1971 Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall Chapter 7 - 22
  23. 23. Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall Chapter 7 - 23 Flexible Exchange Rate Supply and Demand Managed Float
  24. 24. International Conferences Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall Chapter 7 - 24 Jamaica Agreement European Monetary System The Louvre AccordThe Plaza Accord
  25. 25. Start of the International Debt Crisis Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall Chapter 7 - 25 Soaring Oil Prices (1973 – 1974) and (1978 – 1979)
  26. 26. Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall Chapter 7 - 26 Debt Crisis Approaches The Baker Plan The Brady Plan
  27. 27. Recent Financial Crises Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall Chapter 7 - 27 Asian Currency Crisis Subprime Meltdown
  28. 28. Summary of Discussion Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall Chapter 7 - 28
  29. 29. The Balance of Payments Accounting System Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall Chapter 7 - 29
  30. 30. BOP Statistics Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall Chapter 7 - 30 Emerging Markets Business Climate Foreign Exchange- Rate Reserves Lending Risks
  31. 31. Important Aspects of the BOP Accounting System Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall Chapter 7 - 31 Transactions Time Period Monetary Value Between Countries Double-Entry
  32. 32. Major Components of the BOP System Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall Chapter 7 - 32 •Current Account •Capital Account •Official Reserves •Errors and Omissions
  33. 33. The Current Account Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall Chapter 7 - 33 Services of Capital Merchandise Trade Unilateral Transfers Services Trade
  34. 34. The Capital Account Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall Chapter 7 - 34 Foreign Direct Investment (FDI) Foreign Portfolio Investment (FPI)
  35. 35. Inflows and Outflows of Capital in the BOP System Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall Chapter 7 - 35 Current Account Transactions Credit Debit Foreign Ownership of Assets Increases  Ownership of Foreign Assets Declines  Ownership of Foreign Assets Increases  Foreign Ownership of Assets Declines 
  36. 36. Official Reserves Account Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall Chapter 7 - 36 Gold SDRs IMF Reserve Positions Convertible Currencies
  37. 37. Errors and Omissions Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall Chapter 7 - 37 Inaccurate Statistics Flight Capital Legal Transactions Balancing the BOP
  38. 38. Summary of Discussion Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall Chapter 7 - 38
  39. 39. Defining Balance of Payments Surplus and Deficit Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall Chapter 7 - 39
  40. 40. Balance on Trade in Goods and Services Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall Chapter 7 - 40 •Manufacturing •Services Sector
  41. 41. Additional Measures of Global Economic Performance Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall Chapter 7 - 41 Balance on Merchandise Trade Balance on Services Current Account Balance Official Settlements Balance
  42. 42. Summary of Discussion Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall Chapter 7 - 42
  43. 43. Chapter 7 Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall Chapter 7 - 43 International Monetary System and the Balance of Payments
  44. 44. Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall Chapter 7 - 44 All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording, or otherwise, without the prior written permission of the publisher. Printed in the United States of America.

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