...International Business, 14e (Daniels et al.) Chapter 10 The Determination of Exchange Rates 1) The primary objective of the International Monetary Fund is to ________. A) encourage euro adoption B) promote exchange rate stability C) establish a unilateral system of payments D) foster the power of the foreign exchange market Answer: B Diff: 2 Learning Outcome: Summarize the roles of the international monetary system and global capital market Skill: Concept Objective: 1 2) The Bretton Woods Agreement established a system of fixed exchange rates under which each IMF member country set a ________. A) quota B) par value C) gold standard D) nominal interest rate Answer: B Diff: 2 Learning Outcome: Summarize the roles of the international monetary system and global capital market Skill: Concept Objective: 1 3) In order to join the IMF, a country must contribute a certain sum of money, called a ________. A) special drawing right B) trade balance C) monetary reserve D) quota Answer: D Diff: 1 Learning Outcome: Summarize the roles of the international monetary system and global capital market Skill: Concept Objective: 1 4) Which of the following best describes the special drawing right? A) an international reserve asset created to supplement members' existing reserve assets B) the official currency for international trade established by the World Bank C) a substitute for the fixed value of gold as determined by currency rates D)...
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...QUESTION 1 Using the Solow Growth Model to explain the growth miracle in China since 1980: 1. What were the main engines of growth for China for the period 1980–2013? 2. Do you expect China's exceptional growth record to continue in the near future? Why or why not? 3. Can the Chinese experience be replicated in other less developed countries? 1. Introduction China has been the subject of economic and social experimentation since the establishment of the People’s Republic of China in 1949 (Assbring 2012, 4). Still, up until the late 1970’s, China was one of the poorest performing economies in the world, impaired by social unrest and economic inefficiencies (Fan, Zhang and Zhang 2000, 8). After a change in leadership in 1978 and while witnessing the success of other East Asian economies in particular, Emperor Deng Xiaoping initiated economic transformation through the implementation of policies embracing the open market. As a result, China has been able to maintain an impressive growth rate averaging 10% over more than three decades; an achievement unsurpassed by any other economy (Ding & Knight 2008, 2). This unprecedented sustained growth begs the question of what is driving this growth and whether this growth can continue to be maintained in the future. Furthermore, is it possible for the Chinese growth “phenomenon” to be replicated by other countries? This paper intends to address these issues by employing the Solow Growth Model (SGM) as a means of...
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...exchange a foreign currency for their own, like multinational corporations which must pay wages and other expenses in different nations than they sell products in. However, a large part of the market is made up of currency traders, who speculate on movements in exchange rates, much like others would speculate on movements of stock prices. Currency traders try to take advantage of even small fluctuations in exchange rates. In the foreign exchange market there is little or no 'inside information'. Exchange rate fluctuations are usually caused by actual monetary flows as well as anticipations on global macroeconomic conditions. Significant news is released publicly so, at least in theory, everyone in the world receives the same news at the same time. Currencies are traded against one another. Each pair of currencies thus constitutes an individual product and is traditionally noted XXX/YYY, where YYY is the ISO 4217 international three-letter code of the currency into which the price of one unit of XXX currency is expressed. For example, INR/USD is the price of the Indian rupees expressed in US dollars, as in Rs 1 = 0.0015 $. Foreign exchange reserves usually stores foreign currency and bonds held by the central banks of nations all over the world. The basic purpose of foreign exchange reserve is for foreign settlement of debts and payments between governments. These payments primarily associates with loans to create infrastructure, military spending and government aids. ...
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...London and enriches an international network which comprises around 6,200 offices in 74 countries and territories (HSBC, 2013). For decades, HSBC has grown and adapted to conquer the difficulties in China’s revolution and economic crises and now becomes the largest foreign bank in China. This essay combines core module theories and empirical case study to analyze HSBC’s strategy. In the first part, this essay will demonstrate how the strategy of HSBC changed, and compare the strategies before and after the accession to the WTO. The second part will discuss advantages and disadvantages of concentrating on rural areas and emerging markets. The influence of financial crisis, future opportunities as well as threats will be analyzed at last. 1. HSBC’ strategy and China accession to the WTO 1.1. The reason for changing strategy Down the decades, HSBC’s has grown and adapted their strategy from localization to globalization for China in order to react to the changes of economic reform and financial liberalization. HSBC differentiates its strategy from those competitors by describing the unique characteristics which is ‘The world’s local bank.’ Due to this position and strategy, HSBC is involved directly and indirectly in China's modern economic development and reform. HSBC’s strategy in China changed for several reasons. First, HSBC had an insight that emerging market will be the center of their development strategy. It always has an insight of the trend of global economic and focuses...
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...Chapter 2: An Overview of the Financial System This chapter gives an overview of the financial markets and institutions as well as explain the concept and role of financial intermediaries in the economy. According to Mishkin, there are six basic functions the Financial system performs. These functions are as follows: 1. Borrowing and Lending Financial Market can channel funds from savers to borrowers either through direct finance, in which borrowers borrow funds directly from the lenders by selling them securities or through indirect finance which involves financial intermediaries that stand between the lender (savers) and the borrower (spenders) and help transfer funds from one to another. Mishkin also pointed out in this chapter that firms in major developed countries have traditionally relied more on indirect than direct financing in obtaining their borrowed funds. 2. Price Determination 3. Information Aggregation and Coordination 4. Risk Sharing 5. Liquidity 6. Effiency In this chapter, financial markets were also classified into four structures: 1. Debt and Equity Markets Funds can be obtained in a financial market either through issuance of debt instrument such as bond and mortgage which is a contractual agreement and has maturity or equities such as common stock which are claims to share in the net income and the assets of a business. 2. Primary and Secondary markets...
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...Introduction The quantity and quality of available resources and innovations are extremely useful in the explanation of economic growth (Lucas, 1993). Such data is also able to measure various factors e.g. geographical and ecological (Sachs, 2003), and institutional environment in which businesses take place and decisions are being made regarding resource allotments (Gwartney et al., 2006). Moreover, research highlighted a direct link between the significance of service industry and economic growth performance based on US and European data (Bart et al., 2008). Attributable to, however, limited availability of service industry company level data particularly that on economies of scale, policy making in order to increase service industry output rely on previous studies and observation of cumulative global data (Morikawa, 2011). Attributable to the sovereign debt crisis, the quantity and quality of available resources and innovations has undergone serious deformation, which is measured by increased job losses, unemployment, and decreased number of investments. Consumption declined and governments applied various actions to stimulate the economic growth. The three main Industries have been facing tough times and responded differently, whilst these times the service industry has not only been resilient, but also has gone under transformation regarding its structure (Breyers, 2011). The intent in this paper is to underscore the importacy of service industry and prove the following...
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...Transmittal document In this report you will find the brief description of Australia and china money market and interest rate trends. Besides, the leading roles of changing structure of economy and monetary policy for each country will be discussed in detail. Moreover, the most crucial point of this report is to analyse both historical and future money market interest rate trends in these two countries. Table of contents Transmittal document 1 Table of contents 3 Executive summary 4 Introduction 5 Australia 5 Historical Money Market Interest Rates in Australia 5 Prediction of the coming interest rate trend in Australia 7 China 7 Historical Money Market Interest Rates in China 8 Prediction of the coming interest rate trend in China 10 Conclusion 11 Appendices 12 Reference list 13 Executive summary This report aims to discuss the money market in two countries. Through a series of data and analysis, both historical and future interest rate in these two countries as well as events that lead the trends will be presented in this report. Furthermore, structural change for monetary policy that shows effects on the interest rate trends will be discussed particularly. Meanwhile, concerning the influences that financial instruments would have on the interest rate change, some basic market information such as balance between supply and demand as well as liquidity effect are demonstrated specifically. On the other hand, some forecasts of the interest rate...
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...2010-2011 China fiscal policy analysis China ministry of finance undersecretary Wang Jun made a speech in the fourth international taxation dialogue system plenary session. He pointed out that, “from now on, China government will keep put into effect on positive fiscal policy and stable monetary policy, which are aimed at improving the pertinences, flexibility and foresight of fiscal policy.” (Wang, 2011) The policy and target Review back to 2010, China government insists in implementing positive fiscal policy, especially in stimulating the economic growth, transferring the way of economic growth and applying flexible in fiscal policy. As the figure 1 shows, in 2010, China positive fiscal policy facilitate in mainly four aspects: advancing the local fiscal reformation, strengthen the medium-sized and small enterprises and rural construction, promoting the economic development and supporting the social undertaking. Figure 1: Year 2010 China important fiscal policy content Coming out date | Fiscal policy | 4.30 | Treasury department sets fiscal policy: central budget provides specialized fund for helping to expand the minor firms ‘guarantee operations, which can improve the financing environment of minor firms. | 5.13 | Treasury department and SAT (State Administration of Taxation) make an announcement; government will solve the problem that farmers are hard to get loan, by diminishing the sales tax and income tax. | 5.31 | Government will start the trial allowance...
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...2014 GDP Growth Rate During the first quarter of 2014, the United States GDP (Gross Domestic Product) Growth Rate grew only 0.1%. This type of growth makes our economy look worse than it really is performing. There were many different factors that helped hold back the economic growth. One major factor was weather. Weather actually decreased consumption of housing and goods, although it did boost spending on utilities. During 2013, exports to China and business investments on aircraft were very high. A partial pullback in these areas also contributed to an abysmal GDP Growth Rate. The stockpiling of inventories dropped by the extensively as they were moving at unsustainable rates at the end of 2013. U.S. GDP only grew in 2013 at a rate of 1.9%. There are many factors that will only allow slow growth in the GDP. These factors or forces are the following: • Washington’s attempt to cut government spending. • High structural unemployment. • Personal consumption is at 70% of the current GDP. There are a few forces that are worrying analysts about the growth of the United States GDP growth rate. These forces while they will only happen in certain scenarios will also weigh on the GDP growth rate. Below are the forces that and what their effects are on the GDP growth rate. A cutback on the quantitative easing by the Federal Reserve is huge fear of analysts. The cutback will result in higher interest rates on loans and mortgages making getting a loan for individuals...
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...banks counted on housing prices to keep appreciating. | d. | the government eliminated the FDIC. | ANS: C Q.When the overall level of business activity declines persistently, there is said to be a. | a revolution. | b. | a depression. | c. | a recession. | d. | inflation. | ANS: C Q. Economists who try to predict recessions find that recessions are a. | easy to predict. | b. | difficult to predict. | c. | easy to predict in recent years, but they were more difficult to predict before 2000. | d. | non-existent since 2000. | ANS: B Q In the long run, the Federal Reserve(Bank of Canada) can affect a. | inflation. | b. | output. | c. | unemployment. | d. | the exchange rate. | ANS: A Q The simple equation that can be used to predict how the Federal Reserve will change interest rates is known as a. | the Phillips relation. | b. | the Sharpe ratio. | c. | Okun's law. | d. | the Taylor rule. | ANS: D Q Why Do Foreigners Hold U.S. Currency? The dollar is preferred to many other currencies because it is a relatively stable source of purchasing power and widely accepted. It also tends to be the international pricing currency for products traded on a global...
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...analysis of financial databases and investment decisions. In other words, it is aimed to bridge the gap between mathematical theories and practical financial analysing tools (Nawrocki 1999). It could also be defined as“Living with the possibility that future events may cause adverse effects” (Kloman 1999). Risk and profit are always an integral. The variety of risks including portfolio risk, credit risk and liquidity risk became a financial conundrum which equalled to a group of destructive nuclear bombs hidden in the monetary market. Consequently, the risk management represents the core competence in insurance and banking industries. With the innovation of IT technology, more advanced computer software has been introduced in financial area which results that the risk management has made impressive strides in last decade. As the academic field mature constantly, the abstract mathematical and statistic concepts reifies to accessible programs which could predict the trends of investment returns, for example, the expected earnings at the end of next week after buying certain amount of stock at next Monday (Chapman 1996, iv). The origin of risk management could date back to the game theories introduced by two French mathematicians, Blaise Pascal and Pierre de Fermat. Hundreds year past, two professors, Fisher Black and Myron Scholes invented the “Black & Scholes Model” to give suggestions to reduce the risk in stock and option trade in 1973. However, the significance of this subject...
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...and next we have gone through the short-term recovery in 2010 till the return of the bad results in 2012 and negative predictions for the future. We have analyzed the background of Italy economy, the main economic measures and the actions taken by the Italian government to recover the financial situation of the country. In the following chapters we have reviewed the most important financial ratios as gross domestic product, public debt, budget deficit, inflation and others. We have analyzed the historical data, trends of the ratios and tried to predict the future situation taking into consideration the economic factors as well as the political circumstances coming from the last elections in Italy in February 2013. Finally we have concluded the highest risk of Italy’s financial standing that comes from the rising public debt, rising unemployment level, lowering consumptions and investments and ineffective redistribution of public funds (high corruption). We predict that mostly due to the political results of last election and lack of the willingness to implement the structure reforms the financial standing of Italy will be getting worse in coming years. The main threat is raising public debt that will require higher costs to serve it and can lead in the most negative scenario to the bankruptcy of Italy and excluding this country from the Euro zone. Table of Contents: CHAPTER 1. Introduction……………………………………………………. 2 CHAPTER 2. Materials and methods………………………………………. 2 CHAPTER...
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...since 2005, and it has been close to 4.5% growth per year. (Chinese Yuan, 2011) The question is what is the future of RMB? Will it continue in a rising trend? What things can be affected by the change of currency value? In general, the currency value will change when the relation between supply and demand is becoming different. “A currency will tend to become more valuable whenever demand for it is greater than the available supply. It will become less valuable whenever demand is less than available supply.”(Exchange rate, 2011) However, answering to these questions involves more complicated aspects: world trading situation, inflation level, and unemployment rate. There is an interactive relationship, which exists between these aspects and the exchange rate. Therefore, to predict the target value of RMB is extremely important for running China. Combined with current reports and researches, I came to a conclusion that the predicted value of RMB should not rise dramatically, and is better to keep the present value. Opposing position The opposing point is that the value of Yuan should rise up. There are broad concerns among economists on a global scale that RMB is undervalued. According to a report from The International Monetary Fund (IMF) advocated in 2010 that China's currency remains undervalued. (International Monetary, 2010) Many notable economists, such as World Trade Organization Director-General Pascal Lamy, U.S. Federal Reserve Chairman Ben Bernanke,( White, G., 2010...
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...503 POSEBNI PRILOG George Macesich* GLOBALIZATION: PROBLEMS AND PROSPECTS Globalization on Course Thanks to increasing international trade in goods and services, capital flows, and operational linkages among business firms, worldwide integration and interdependence is now a fact of life. This is globalization.1 For all of its many problems, giobalization is worth pursuing as a way to raise the world’s living standards. Its call for open markets is direct. It is often not simple to put in practice as public policy. Its decline during the turbulent years between World War I and II underscores how difficult it is to put such policy in place. Nevertheless, by the I 950s the world economy again resumed its upward trend toward globalization. Still, the road is not smooth. Turbulence In Capital and Money Markets Critics of the International Monetary Fund (IMF) argue that the JiMF’s mistakes may well have created a backlash against globalization in the post-Cold War years.2 The Asian and Russian crises in the closing years of the 1990s and IMF attempts at fixing problems complicated the advance of Western-type market economies. A case in point is Malaysia, which in September 1998 effectively cut * George Macesich, profesor i direktor na Institute for Comparative Policy Studies, Research and Exchanges na Florida State University, Tallahassee, Florida, SAD. Ovaj je rad pripremljen za seminar koji je održan 27. 3. 2003. na College of Engineering, University of South...
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...Financial deregulation and the floating of the Australian dollar since 1983 intensified the impact of globalisation on the Australian economy. • New technology and the tools of globalisation – the internet, email, mobile phones, media and communication networks have all sped up the process of globalisation. They have increased the spread and speed of knowledge transfer and communication. Australian consumers can buy products from any nation in the world, transfer funds between accounts or purchase shares in any major market. Australian businesses can market their products at a fraction of the cost and be exposed to a global market place of competition. This potentially is the closest we will ever come to the perfect market. • New institutional players – The World Trade Organisation (WTO) has growing authority over national governments, as does the IMF with its restrictions and controls it can impose on nations requiring assistance. Multinational corporations have more economic power than many nations. Hedge funds and financial dealers are able to manipulate financial flows and subsequently exchange rates, leaving nations helpless in their wake. This in turn renders traditional economic policy...
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