...summarize the major functions of the world’s major foreign exchange markets. The gold standard was a monetary system that many countries used in order to determine the value of domestic currencies in relation to a specific amount of gold. The value of money, bank deposit and notes were transformed into gold at the specific amount. Britain was the first country to adopt the gold standard in 1816, followed by the United States. From 1834 until 1933 the specified price of gold in the United States was $20.67 per ounce (Bordo, 2002). However, in 1933 U.S. President Franklin D. Roosevelt put an end to the gold standard when he prohibited the possession of gold by any persons except for the purposes of owning or manufacturing jewelry (Moffatt, 2008). This was the beginning of the Bretton Woods System. Under the Bretton Woods System, countries agreed to settle their international balances by converting deficits into U.S. dollars at a flat exchange rate of $35 per ounce (Bordo, 2002). This monetary system only lasted until 1971 when President Richard Nixon completely ended the trading of gold (Moffatt, 2008). Since that time the gold standard has not been used by any major economies. The most important benefit of using the gold standard was that it insured a low level of inflation. According to Michael Bordo (2002), “Whatever other problems there were with the gold standard, persistent inflation was not one of them. Between 1880 and 1914, the period when the United States was on the...
Words: 1260 - Pages: 6
...been analysis with the macroeconomics knowledge that has learnt from this course. The advantages mainly help to eliminate the floating exchange rate, transaction cost and price transparency, whereas the disadvantages include loss of sovereignty, cost of Euro and budget position. Thus, the significant influences of Euro dollar from birth to now, it can be known that Euro currency is defined under flexible exchange rate system. With flexible exchange rate, the currency can be effort between the capital movements, tax and subsidize international trade and therefore the currency from overseas will influenced the demand. 2. Analysis 1. History of Euro In January of 1999, single currency, Euro has been introduced by members of European Union. It has been approved by Maastricht Treaty and used by its members currently who called as Eurozone. Those members consists of 16 members which are Austria, Belgium, Cyprus, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, Malta, the Netherlands, Portugal, Slovakia, Slovenia, Spain. Hence, United States, Denmark and Sweden are those countries only which not adopted by same currency. Meanwhile, the “Maastricht criteria” was set with some specific conditions to meet its major purpose which is economy stabilization. Those conditions include specific conditions. First, the inflation rate should not be...
Words: 2771 - Pages: 12
...bond holder, they are actually issuing a debt and promise to repay the original bond price plus interest in most cases. The interest paid on this debt is considered the coupon payment and is usually paid semi-annually or annually. Depending on the type of bond, the coupon payment can be a fixed rate or it can change over the course of maturity. Bonds have maturities that range from one year to over fifty years. A bondholder might not want to hold the bond until the agreed upon date so they sell the bond in a secondary market in order to have access to their money again. A bond can be a municipal, a treasury, a junk, a corporate or an I-bond. There are also bonds considered convertible bonds that can be transferred into stock by the bondholder. “Bonds are an important part of the economy and contribute to two-thirds of the average daily trade in U.S. market (Chakrvarty)”. Bonds are considered valuable because they are a means to wealth from an investor’s standpoint and they make business operations more accommodative for corporations. This is a direct route to gaining capital when it is needed. 2. Evaluate all the factors that affect interest rates to determine the one that appears to impact interest rates the most in today’s economic climate. Support your answer with evidence and examples. There are several factors in our economic environment that can affect interest rates. The...
Words: 2121 - Pages: 9
...Financial markets in the U.S. are a major reason our economy is able to be so successful today. Our financial markets make a major impact on how our financial system operates and how we base our current economic performance. Financial markets consist of actions in conjunction with financial securities such as, bonds, stocks, options, future, and commodities like gold or housing. Financial markets stimulate the flow of capital expenditures, risk being taken in the stock markets, and also international transactions. Globalization and the success of our financial market has made other nations markets dependent on upon ours. Even the major crisis's in the financial markets inevitably effect our economy dramatically. Like the financial bubble in 2007, individuals and businesses to a massive hit, when the bubble burst in the housing market. The rising of the housing market, with banks giving out loans to about anyone that walked in and individuals who knowingly not able to afford them taking advantage of it, lead to complete fall of the housing market. The U.S. Federal Reserve is the major power in the monetary aspects of our country, and not only our country, but many other countries rely on it. The Federal Reserve, also known as our central bank of The United States, is undoubtedly one of the most influential and powerful establishments globally. The Federal Reserve System traditionally conducts monetary policy, regulates and supervises banks, oversees financial markets...
Words: 937 - Pages: 4
...appointed Speaker of the House and I must deliver a speech about the current state of the United States macroeconomy to amateur reports who are not familiar with economics. As many of you may know, the current state of the United States economy is recovering from a recession. Macroeconomic forces such as interest rates, exchange rates, trade deficits, inflation, and gross domestic products are factors that continue to influence a company’s bottom line and these factors can cause business to be more difficult. International trade and financing play an important role in the growth and continued success of our economy. What happens when there is a surplus of imports brought into the U.S.? Cite a specific example of a product with an import surplus, and the impact that has on the US businesses and consumers involved. When we experience a surplus of imports brought into the United States, local businesses suffer. Sure consumers are happy about the surplus since the product prices will decrease, but this will cause an immediate need for our country to produce more exports to help compensate for the loss. The surplus of imported cars in 2012 exceeded exportation amounts by over $151 billion. Cars only carry a shelf life of one year since new models are released yearly. The surplus amounts of cars are sold at discounted rates which is something that helps consumers looking to buy. What are the effects...
Words: 736 - Pages: 3
...the buyer and the profit of the seller (Funk & Wagnalls, 1993). Entrepreneurs who start and manage businesses do so for successful profits. In any capitalist economy, businesses play an important role. Businesses are the major providers of employment, goods and services, and as a result of supply and demand, the major drivers of economic growth in an economy. When significant usage of the factors of production such as natural resources, capital, human resources, and entrepreneurship is achieved to their maximum objectives, more profits are made (McGowan, 2012). Therefore, an increase in capital is made from each business for the economy. This process enriches and stimulates the economy with a better standard of living for its people in the nation. Businesses provide people with more opportunities, choices, and freedoms to enjoy their lives without having to produce all goods and services on their own like growing on own food or making our own clothes. The role that business plays in the economy consists of a multitude of things. There must be a market in which allows buyers and sellers to discover information about one another to complete voluntary exchanges of goods and services. Second, the business needs to trade or offer something of economic value such as a good, service, information or money exchanged between two entities. Business is the management and coordination of individuals and resources to accomplish certain production goals, usually for the purpose of making...
Words: 641 - Pages: 3
...exchange rate systems. DEFINITION OF EXCHANGE RATE Exchange rate is defined as the rate at which one currency may be converted into another. The exchange rate is used when simply converting one currency to another (such as for the purposes of travel to another country), or for engaging in speculation or trading in the foreign exchange market. There are a wide variety of factors which influence the exchange rate, such as interest rates,inflation, and the state of politics and the economy in each country, also called rate of exchange or foreign exchange rate or currency exchange rate. (1). FLOATING EXCHANGE RATE SYSTEM In a floating exchange rate system, governments and central banks do not participate in the market for foreign exchange. The relationship between governments and central banks on the one hand and currency markets on the other is much the same as the typical relationship between these institutions and stock markets. Governments may regulate stock markets to prevent fraud, but stock values themselves are left to float in the market. The U.S. government, for example, does not intervene in the stock market to influence stock prices. The concept of a completely free-floating exchange rate system is a theoretical one. In practice, all governments or central banks intervene in currency markets in an effort to influence exchange rates. Some countries, such as the United States, intervene to only a small degree, so that the notion of a free-floating exchange rate system...
Words: 4843 - Pages: 20
...Introduction……………………………………………………………………pg.3-4 Business Cycle………………………………………………………………... pg.4-5 a. GDP Growth Rate……………………………………………..pg.5-6 b. Inflation………………………………….………………..…..pg.6 c. Unemployment………………………………………………..pg.7 Fiscal Policy and Level of Unemployment……………………………………pg.7-9 Monetary Policy and Interest Rates…..………………………………………..pg.10 d. International Trade…………………………………………….pg.11 I. U.S. International Trade Graph………………………..pg.11 e. Demographics…………………………………………………pg.12 Analysis………………………………………………………………………..pg.13 Recommendations and Economic Justification…………....…………………..pg.13 References……………………………………………………………………..pg.14 Executive Summary After more than 30 years of growing corn, Uncle Dan wishes to leave that market and transition over to what he considers a profitable market. He has 100-acre corn farm which he was thinking of subdividing and utilizing to build shops and homes on. Uncle Dan believes that by building these shops and homes on a large piece of land he can make a greater profit renting or selling them. Subdividing land is a long process in itself and can actually be a big investment also gaining equity. When splitting the land into smaller parcels it can create a multitude of lots however prior to this an estimate needs to be made on how many can be created and a permit is required which varies from state to state. The price will depend on the size and orientation of the parcel. Introduction Uncle Dan is looking...
Words: 2351 - Pages: 10
...1.0 Question a Explain sovereign risk. Broadly defined, sovereign risk refers to the risk that a host government or sovereign power will default on its payment obligations. For example, a host government or sovereign power may unilaterally repudiate its foreign obligations or many prevent local firms from honouring their foreign obligations. Sovereign risk reflects potential adverse effects resulting from a country’s political conditions. In other words, sovereign risk reflects the possibility that political conditions could prevent the counterparty in a swap agreement from meeting its payment obligations. Various political conditions could prevent the counterparty from meeting its obligation in the swap agreement. For example, the local government might take over the counterparty and then decide not to meet its payment obligations. Alternatively, the government might impose foreign exchange controls that prohibit the counterparty from making its payments. Sovereign risk differs from credit risk because it is dependent on the financial status of the government rather than the counterparty itself. A counterparty could have very low credit risk but conceivably be perceived as having high sovereign risk because of its government. It does not have control over some restrictions that are imposed by its government. Comment on the most common indicator of sovereign risk with current examples. Spain's Government Bond Yield for 10 Year Notes rallied 58 basis points during the last...
Words: 5678 - Pages: 23
...The Research Proposal For The Relationship among Shanghai Commercial Housing Price and Four Variables, Disposable Income, Completed Housing Area, Interest Rate, and Inflation Rate (2007-2010) BY FIN (2) Yang Bohan 0730200084 Tel: 13750016724 Guo Bingyu Liu Yuanjia Xia Jinjing Teng Linyan Li Hui 0730100034 0730100086 0730200079 0730200063 0730200148 Beijing Normal University – Hong Kong Baptist University United International College May 14, 2010 0 Table of Content 1. 2. 3. 4. 6. 7. 8. Title ........................................................................................................................................... 4 Introduction ..............................................................................
Words: 7950 - Pages: 32
...Eco550 – Economics for Managers September 5, 2011 Question: Describe the changing economic variables in China that influenced McDonald’s expansion strategies. The main changing economic variables in China that influenced McDonald’s Expansion were the increase in GDP and the economic stimulus package. In 2007, the increase in GDP showed a level of strong jobs in China as well as increase income for the Chinese (Farnham, 2010). This allowed the Chinese to spend more money on eating out at restaurants which gave McDonald’s a great opportunity for expansion. In addition, the Chinese government had a stimulus package after the economy dropped in 2008. The stimulus package included building more highways which allowed the Chinese to be accessible to the drive through window opportunity that McDonalds was able to offer as part of their expansion. Question: What factors led to the Mexican currency crisis and peso devaluation in 1994? The factors that led to the Mexican currency crisis and peso devaluation were the Appreciation of the exchange rate, falling interest rates, and the foreign savings. The appreciation of the exchange rate resulted in a decrease in savings with an increase in investment due to the expansion of credit without any federal regulations (Farnham, 2010). The falling interest rates were a result of the appreciation of the exchange rate attracting private capital via privatization of banks and free trade negotiations with the United States (Farnham...
Words: 915 - Pages: 4
...Fiscal Policy ECON372 Fiscal Policy Fiscal policy is the government’s way of stimulating or slowing down the economy. Actions taken by the government can slow growth if things are moving too fast or stimulate growth if the economy is in a lull. Walmart, a major retailer in the United States, is one of the many organizations that are influenced by fiscal policies. Tax rates and spending can affect the organization’s ability to sell goods and services as well as create jobs for the economy. Based on fiscal policies implemented and economic predictions, there are a few recommendations that can be made to Walmart in order to positively influence the economy and their business. Federal Government Spending Fiscal policy is changes in government spending and taxes in order to influence the economy in some way. It works by changing the level or composition of aggregate demand (AD). Government spending in the United States has steadily increased from 7% of GDP in 1902 to almost 40% today (Chantrill, 2015). A decent amount of federal spending has gone for health care, education, pensions, and welfare programs. Defense spending in the United States has fluctuated in the last century, rising from 1% of GDP, peaking at 41% in World War II, declining from 10 percent in the Cold War to five percent today (Chantrill, 2015). Government spending on education has expanded from about one percent of GDP in 1900 to peak at 6 percent in the second decade of the 21st century. Government...
Words: 1678 - Pages: 7
...LO1 Understand the organizational purposes of businesses. ACs 1.1 identifies the purposes of different types of organization. Tasks 01 Legal Structure of Business Organization: A business Organization may have three legal option or structure, they are: Sole Trader: A person who runs unincorporated business on his or her own. Sometimes it is known as "sole proprietor" or "sole practitioner". Partnership: A partnership is an association of two or more people formed for the purpose of carrying on a business. Partnerships are governed by the Partnership Act (1890). Incorporated Company: Incorporating business actions into a company confers life on the business as a "separate legal person", Profits and losses are the company's and it has its own debts and obligations. Types of the Business Organization: Private Company: A company whose ownership is private. Private companies may issue stock and have shareholders. Public Company: Public Company may be defined as, A company that has issued securities through an initial public offering (IPO) and is traded on at least one stock exchange or in the over the counter market. Government Company: Government Company may be defined by, it is a legal entity created by a government to start money-making activities on behalf of a proprietor government. Voluntary Organization: Voluntary organizations may be defined as, organizations are non-profit ambitious, self-directed and non-statutory, that are run by persons...
Words: 6046 - Pages: 25
...The Federal Reserve Bank As the United States moves towards a globally interdependent marketplace, the global monetary stakes have become much higher. The United States Congress established the Federal Reserve in the early 1900’s. A country’s debt can now become the world’s debt, and the role of the U.S. federal banking system is now considerably more under pressure and scrutiny than ever before. As we have been seeing with the current liquidity crisis in the U.S., and how it has affected U.K. and Asian markets, strong, comprehensive policy-making is now crucial to sustaining long-term economic viability. The American economy is a complex balance of services, financial, manufacturing, agricultural, and banking industries. For this reason, the U.S. is a global economy, relying upon foreign investments and trade to create and retain wealth. Over the years, America has evolved from farming-based, to industrial, to a services-based economy. As a result, the banking system from its inception has weathered the many growing pains associated with a new government and currency, instituting regulations and a centralized bank to examine the economy, and implementing policies intended to offset factors negatively affecting the general financial health of the country. Despite the growing need for quick, precise actions by the Federal Reserve System, the decision-making regarding the economy is often met with controversy. The recent bail out plan, passed by Congress...
Words: 2694 - Pages: 11
...Managerial Economics Lorena LaRue Jenson Hagen, CPA, MFA Colorado Technical University May 25, 2014 Abstract After a task of completing the most important factors for the relocation of AutoEdge from their current location, there is further research required by Lester Scholl to identify additional aspects regarding the economy of both respective countries, United States and South Korea. The board was appreciative of the last presentation being performed and requires additional information to achieve the decision required for the success of the facility. This information required by the organization contains facts concerning the gross domestic product (GDP), unemployment, interest rates, and inflation for both countries. They desire the information to be current within six months, so the organization can make the best decision possible for AutoEdge (CTU, 2014). Utilizing the economic factors of an organization will present the future for the organization and assist with the processes required to make the business a success. A Macroeconomics Outlook for AutoEdge Within the process of business in our current society, there are many issues one must face, especially when participating in global business expansion practices. In the case of AutoEdge, there have been issues affecting the progress and growth of the organization because of international business issues in the selected country, South Korea. As mentioned previously concerning different factors one must consider...
Words: 3157 - Pages: 13
