This document discusses concepts related to international finance and economics, including: 1) Supply and demand factors that influence currency values, as well as preferences for currency stability or a relatively low exchange rate. 2) The risks of currency overvaluation, devaluation, and how this impacts trade balances and trust in a currency. 3) Two theories - hegemony and small groups - that can help achieve international exchange rate stability. 4) How multinational corporations operate across many countries in industries like manufacturing, finance, and services.

3. Supply
Demand
Currency Stability
Low Value
Overvalued
Devaluation
Theory of Collective Goods
a) Hegemony (dominance principle)
b) Small Group (Reciprocity Principle)

4. Supply is determined by the amount of money a
government prints, printing money is a quick way
to generate revenue for the government, but more
money that is printed, the lower its price.
Domestically, printing too much money creates
inflation because of the number of goods in the
economy unchanged, but more money is
circulating to buy them with.

5. Demand for a currency depends on the
state’s economic health and political
stability. People don’t want to own the
currency of an unstable country because
political instability leads to the breakdown
of economic efficiency and of trust in the
currency. Conversely, political instability
boosts a currency’s value.

6. Currency Stability is hard to achieve.
Between 2010 and 2015, the US dollar
dropped from over 90 Japanese yen to
under 80, then rose to 120. This kind of
instability in exchange rate disrupts
business in trade-oriented sectors because
companies face sudden unpredictable
changes in their plans for income and
expenses.

7. States often prefer a low value for
their own currency relative to
others because a low value
promotes export and help turn a
trade deficit into surpluses-as
mercantilist especially favor.

8. An overvalued currency, whose exchange
rate is too high, creates a chronic trade
deficit. The deficit can be covered by
printing more money, which waters down
the currency’s value and brings down the
exchange rate.

9. A unilateral move to reduce the value of a currency
by changing a fixed or official exchange rate is
called a devaluation. It causes losses to foreigners
who hold one’s currency (which suddenly losses
value) such losses reduce the trust people place in
the currency. Investors become wary of future
devaluations, and indeed such devaluations often
follow one after another in unstable economies

10. Hegemony (dominance principle)
To maintain hegemony, the world currency is backed
for stability by using influence over the other great
power states, or some other states.
Small Group (Reciprocity Principle)
Under an arrangement among a small group of key
states international exchange rate stability can be
achieved. When states reduce trade barriers on other
states.

12. A company based in one state with affiliated
branches or subsidiaries operating in other
states (Johsua.p.329) MNCs operates on a
worldwide basis in many countries
simultaneously, with fixed facilities and
employees in each. These are in the tens of
thousands worldwide.

13. Industrial Corporation make goods in
factories in various countries and sell
them to businesses and consumers in
various countries, the automobile, oil, and
electronics industries have the largest
MNCs. Almost all of the largest MNCs are
based in G8 states.

14. Financial Corporations also operate
multinational-although oftern with more
restrictions than industrial MNCs. Among the
largest commercial banks worldwide, the
United States doesn’t hold a leading position. It
reflects the US antitrust policy that limits
banks’ geographic expansion.

15. Services (MNCs)
Some MNCs sell services. The McDonald’s
fast food chain and American Telephone and
Telegraph are good examples.

17. “The acquisition by residents of one
country of control over a new or existing
business in another country”
(Joshua.p.331)

18. Foreign direct investments can be made in a variety of ways,
including
The opening of a subsidiary or associate company in a foreign
country
Acquiring a controlling interest in an existing foreign company
By means of a merger or joint venture with a foreign company

19.  Horizontal
 Vertical
 Conglomerate

20. A horizontal direct investment refers to the
investor establishing the same type of
business operation in a foreign country as it
operates in its home country, for example, a
cell phone provider based in the United States
opening stores in China.

21. A vertical investment is one in which different
but related business activities from the
investor's main business are established or
acquired in a foreign country, such as when a
manufacturing company acquires an interest
in a foreign company that supplies parts or
raw materials required for the manufacturing
company to make its products.

22. A conglomerate type of foreign direct
investment is one where a company or
individual makes a foreign investment in a
business that is unrelated to its existing
business in its home country. Since this type of
investment involves entering an industry in
which the investor has no previous experience,
it often takes the form of a joint venture with a
foreign company already operating in the

23. Services (MNCs)
Some MNCs sell services. The McDonald’s
fast food chain and American Telephone and
Telegraph are good examples.

24.  Economic Growth. Countries receiving foreign direct
investment often experience higher economic growth by
opening it up to new markets, as seen in many emerging
economies.
 Job Creation & Employment. Most foreign direct investment
is designed to create new businesses in the host country,
which usually translates to job creation and higher wages.
 Technology Transfer. Foreign direct investment often
introduces world-class technologies and technical expertise
to developing countries.
 Host-Home Govt. FDI plays crucial role in the uplifting the
relations among the the host and home governments.

25. Strategic Industries. Many countries protect certain strategic
industries, like defense, from foreign direct investment to maintain
control from foreign entities.
Long-term Capital Movement. Some critics argue that once a foreign
investment becomes profitable, capital really begins to flow out of the
host country and to the investor's country.
Disruption of Local Industry. There is some concern that foreign direct
investment may disrupt local industry and economies by attracting the
best workers and creating income disparity.
Mercantilists tend to view foreign direct investment in their own
country suspiciously.
In developing countries, FDI often evokes concerns about a loss of
sovereignty because governments may be less powerful or less wealthy.

26. The End to Mid