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Foreign Exchange
           Management
• Exchange-Rate Systems
   - Gold Standard
   - Par Value (Adjustable Peg)
   – Crawling Peg :– a fixed exchange
     rate in
      which regular (frequent?) periodic
     adjustments
   – Floating (Flexible) System: No
     Government Interference, Market
     Forces dictate equilibrium exchange
     rates, Value of a nation’s currency
     allowed to “float” down or up
Money
• Hard (International) Currencies
  vs. Soft Currencies
• Functions of Currency
 - medium of exchange
 - unit of account
 - store of value
Foreign Exchange Market
  • Credit (Financing)
  • Clearing
  • Hedging
  • Spot Market vs. Forward
    Market
Foreign Exchange Rate
   • Currency Equilibrium
   • Effect of Devaluation
   - Exports and
     Employment
   - Imports & Consumer
     Welfare
Exchange Rate Systems
• Gold Standard
• Par Value (Adjustable Peg)
• Crawling Peg (Sliding or Gliding
  Parity)
• Wide Band
• Floating (Flexible) System
Official Classification of
  Exchange Rate Regimes
• Floating Exchange Rate Regimes
  - independently floating regimes
  - managed floating regimes
• Intermediate Exchange Rate
  Regimes
  - soft pegs
  - tightly managed floating regimes
• Hard Peg Regimes
  - currency boards
  - exchange rate regimes with no separate
    legal tender
Financial Implications
          and Strategies
•   Early Warning Systems
•   Hedging
•   Leading and Lagging
•   Invoicing
•   Pass-Through Costs
•   Other Strategies

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Foreign exchange management

  • 1. Foreign Exchange Management • Exchange-Rate Systems - Gold Standard - Par Value (Adjustable Peg) – Crawling Peg :– a fixed exchange rate in which regular (frequent?) periodic adjustments – Floating (Flexible) System: No Government Interference, Market Forces dictate equilibrium exchange rates, Value of a nation’s currency allowed to “float” down or up
  • 2. Money • Hard (International) Currencies vs. Soft Currencies • Functions of Currency - medium of exchange - unit of account - store of value
  • 3. Foreign Exchange Market • Credit (Financing) • Clearing • Hedging • Spot Market vs. Forward Market
  • 4. Foreign Exchange Rate • Currency Equilibrium • Effect of Devaluation - Exports and Employment - Imports & Consumer Welfare
  • 5. Exchange Rate Systems • Gold Standard • Par Value (Adjustable Peg) • Crawling Peg (Sliding or Gliding Parity) • Wide Band • Floating (Flexible) System
  • 6. Official Classification of Exchange Rate Regimes • Floating Exchange Rate Regimes - independently floating regimes - managed floating regimes • Intermediate Exchange Rate Regimes - soft pegs - tightly managed floating regimes • Hard Peg Regimes - currency boards - exchange rate regimes with no separate legal tender
  • 7. Financial Implications and Strategies • Early Warning Systems • Hedging • Leading and Lagging • Invoicing • Pass-Through Costs • Other Strategies