...in the world used the same currency, the theories and techniques of International Finance would be unnecessary. But because there are so many different currencies in use throughout the world, it is essential that the international manager understands these theories and techniques" INTRODUCTION The traditional answer to the above statement should suggest that government could utilize their power in creating money, which would affect exchange rate, output prices or revenue. Still a lot of countries have developed interest in maintaining different currencies even when they have limited ability to create money, particularly money at a national differentiated growth rate. For example during the era where money was rated equivalent to the price of precious metals or were pegged to gold, exchange rates were fixed. This involves, the gold standard of the 19th and 20th centuries, and also at the time of the of the post war era during Bretton woods regime. Then most governments had limited abilities to create money mostly at national differentiated growth rates. It was really rare. However, it seems that the number of world currencies have increased so much together with the amount of countries over the past five decades, which will decline strongly within the next two decades. The question posed here is from an economic point of view, asks if we should aim for a halt in this process or should there be single global currencies or multiple major currencies with stringent rules for arranging...
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...makes the situation even worse due to the fact that world economy has become more open and integrated. In today’s world, there is no nation that exists in economic isolation. Every countries almost all the economic aspects- its education, health service, industries, service sectors, levels of income, and employment is integrated to the economies of its adjacent countries. This linkage plays a very important role in the global movement of goods and services, labor, investment funds, and technology. That is, when a country defaults on paying its debt, it not only affects the country in default, but also initiates a global economic crisis. In my research paper, I will tell the tale of eurozone debt crisis, which has created a global hysteria in the current world economy. In the research that follows, I will start with a brief history of the eurozone, how did eurozone face the debt crisis, and what might be ahead for the global economy, amid the ongoing European financial crisis. Eurozone is a term designated for all the countries that share a common single monetary policy managed by the Euro-system comprising the Frankfurt based –European Central Bank (ECB) and the central banks of member states....
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...market The international debt market The foreign exchange (currency) market Globalisation of financial markets The global economy has undergone through a number of structural changes in the past few decades: Real changes liberalization of product and factor markets, allied with technological developments increased output in many countries and particularly in the previously centrally planned economies Monetary changes a global commitment to maintain low rates of inflation after the boost in inflation in the ’70s Financial changes growing completeness and integration of world financial markets, fueled by deregulation and technology 3 Globalisation of financial markets Realities of global financial markets: Short-term nature of capital flows High turnover in financial markets Multiplicity of agents High number and complexity of instruments High speed with which market participants react to new information Global reach of financial institutions Implications: Growing integration of financial markets, including emerging markets Better financing of current account deficits Financial contagion risks 4 How developed are the world’s financial markets? The world’s financial assets totalled $196 trillion at end 2007 and were expected to reach $214 trillion by the end of 2010 The value of the world’s financial assets exceeded the global GDP by a factor of 3 – this is an unprecedented degree of financial...
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...threshold within their economic systems. The level of co-operation needed in such a union has to be very high to deal with a host of issues including inflation, interest rates and asymmetric shocks (for example an oil shock impacting one of the member countries may not necessarily impact the other). Meaning that if anything happens in other countries we will automatically be directly affected due to the fact that we all have the same currency. As of now with most countries not having the same currency we can help one another. Right now Euro is worth a lot more than the United States dollar. Everything is temporarily which means that depending on the time that the United States decides to peg their currency with euro determines the out outcome. It depend on how the European economy is doing at the time compared to the United States economy. If we all have the same currency we are asking for trouble, because of the language barrier between each country. It would also cost an enormous amount of money to replace every countries currency with a super-currency. There are a numerous amount of questions that need to be asked before making a drastic change...
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...INTRODUCTION GOLD DINAR AS AN ALTERNATIVE CURRENCY [pic] What is dinar? The word dinar refers to gold coins used as a medium of exchanges by Muslims through out the Islamic history until the fall of the Khalifah Ottoman. In a technical sense, the Islamic dinar is commodity money. The dinar was equivalent to 4.25 grams of gold. In Malaysia, the dinar is 22K gold weight equivalent to 4.25 grams. Where you can buy the gold dinar? 1) Islamic Mint Sdn.Bhd 2) IGD Exchange. Com 3) Royal Mint Sdn.Bhd. 4) Wakala Yayasan Melaka 5) Wakala KPMNJ Johore Bahru(coming soon) 6) Ramcell Media Sdn.Bhd. WHY WE NEED THE GOLD DINAR SYSTEM? PAST AND PRESENT EXPERIENCED • THE GOLD STANDARD COLLAPSED This is because of the cause’s serious trade disruptions after the two wars. It also because countries printed more money than the amount of gold they had. • THEBRETTON WOODS FAILURED This system thus collapsed in 1971. The cause is the US was forced to sell one-third of its gold reserves to maintain the dollar’s value. • THE PROBLEMS OCCURRED IN THE PRESENT FINANCIAL SYSTEM It shows that many problems occurred such as business cycles, unemployment and inflation. • THE DEPRECIATING OF USD. US near to become bankruptcy with the debt of US$7 trillion and will gradually increase. IMPORTANTS! • A MECHANISM TO PREVENT INFLATION Dinar has good characteristics of a good money-desired, highly valued...
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...Foreign Currency & The Economy Author: Ashish Ghangrekar Abstract: This paper attempts to discuss about the relation between Foreign Currency & the Economy. The paper develops the correlation between foreign currency & the economy. It further goes on to discuss the various parameters that affect this correlation. Finally, a few hypotheses drawn from the discussion are presented at the end of the paper. Introduction: Foreign Exchange & foreign currency is the elastic link between various independent political states. The Central Bank of a country frames the monetary policy to maintain a desirable Foreign exchange rate & regulate the flow of foreign currency in an economy. Now let us understand the correlation & interplay between foreign currency & the various economic parameters. In a floating regime of exchange rates, the interest rates in the country are adjusted so as to vary its real exchange rates & also as a measure to control inflation. Therefore a developing capitalist country will have its Central Bank adopt the policy of keeping its interest rate as low as possible. This will enable the entrepreneurs & the various economic actors to obtain capital at a cheaper rate. It will also help to maintain a low real exchange rate & hence boost domestic exports. Growing exports will see a positive trade balance or a Current Account Surplus. With a current account surplus the country can make strategic investments in the foreign markets or acquire factories. This will result...
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...Honeywell, Inc. and Integrated Risk Management Case Analysis Submitted to: Prof. A. Kanagaraj By Vivek Gupta Section C, 944 Executive Summary: Honeywell was a multibillion-dollar, International Corporation employing 53000 people and managing operations in 95 countries. It was the largest producer of control systems and products used to regulate heating and air conditioning in commercial buildings and of systems in avionics systems. Carrying out business in 95 countries firm faced a number of risks. Honeywell’s risk management activities were dispersed throughout the firm as shown in the table. Other risks were managed operationally. [pic] The committee voting for this new program depends on whether the anticipated savings of the program would be realized, and whether the coverage provided by the new contract would be adequate. The proposed plan is a first step in a firm wide integrated risk management program that would extend to cover all of Honeywell’s financial and operational risks, the finance committee’s decision would establish Honeywell’s risk management strategy for some years to come. Honeywell’s existing strategy was consistent with its risk management objective of minimizing earnings volatility and its cost of risk. The team wondered about the applicability of the relatively new concept of enterprise risk management, which is grouping many risks together into a portfolio of risks, rather than managing each risk separately. The team thought...
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...Constraints to internationalization of Asian currencies and the way forward Let me conclude by flagging five issues. First, as I have already outlined above, a number of recent studies on integration of Asian financial markets have, based on empirical analysis, concluded that regional integration of Asian financial markets, both equity and debt markets, have progressed over the years but is still incomplete and there is a lot of divergence in the level of integration. China has been making definite moves, but there is hardly any integration in the rest of Asia, though spillovers from international markets are increasingly being felt in other Asian markets, including India, which is indicative of growing integration of the Asian markets with global markets. Apart from local factors such as credit or liquidity risks in some Asian economies, the divergence and the lack of progress in financial market integration can be attributed to several factors, particularly the failure to harmonise standards in the regions' capital markets. Second, currency internationalization, which entails market liberalization, requires putting in place regional financial market infrastructure that includes a regional system of clearing and settlement, regional credit guarantee institutions, hedging facilities, and regional credit rating agencies to foster cross-border investments. This will also need to be accompanied by the harmonisation of legal and regulatory systems, market practices, rating standards...
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...Gold Standard By phil42 | Studymode.com With the Gold Standard, the US economy would print currency that equaled a specific value of gold. Meaning, you could cash in your money for a specified amount of gold because a unit of currency = a specific amount of gold. The limitations to Governments was that they could not spend what they wanted because the amount of currency in circulation had to correspond to the amount of gold in reserve. Nixon, eliminated the Gold Standard, I think during the Vietnam war. As a result, the currency in circulation today does not have to be backed up by anything, not gold, not anything. That's why we see trillion dollar deficits today. Politicians can spend what they want regardless of the real economic downfalls that eventually have to be dealt with. Nowadays, on a side note, our US debt is fianced by foreign governments such as the Chinese and others. This means most of debt the US government owns is owed to foreign investers. The answer to whether having Gold Standard is good or not is based on who you ask. Economists will have one answer, politicians will have another. The phrase “gold standard” is defined as the use of gold as the standard value for the money of a country. If a country will redeem any of its money in gold it is said to be using the gold standard. The U.S. and many other Western countries adhered to the gold standard during the early 1900’s. Today, however, gold’s role in the worldwide monetary system is negligible....
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...acting with apparent disregard for the dire predictions in the press of a European Union (EU) on the verge of bankruptcy and dissolution. Meanwhile, financial markets backed off from their attacks on the PIGS (Portugal, Ireland, Greece, and Spain) while those porcine countries moved forward with significant reforms, slashing their deficit and debt levels. German growth in the last quarter has driven eurozone growth to above U.S. levels, giving pause to euroskeptics and glee to euroboosters on both sides of the Atlantic. And yet the EU is far from out of the woods. The past two years of global economic upheaval have sorely tested the EU’s Economic and Monetary Union (EMU) and its crowning achievement, the euro. At base, the problem is simple: the EU is an outlier in political and economic history, and markets do not know what to expect from its unique combination of a single currency and separate nation- states. The eurozone crisis reveals the challenges of the EU’s sui generis political status—no longer a mere collection of nation-states, yet not a fully fledged federal entity. What, then, should we expect for the future of European integration? What does the stillunfolding eurozone crisis mean for the larger geopolitical position of the EU? Absent a crystal ball, any response is necessarily hazy and conjectural. Nevertheless, it is possible to sketch out some significant milestones and signposts that will determine the path of Europe’s future. The critical question ...
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...Stable Currency Solution - An Alternative to a Single Currency By: A. Karim Afshar (PhD Finance) 2004 Executive Summary • The Unity (U) is a global single currency solution designed to mitigate the adverse impact of exchange rate volatility. • The Unity currency will be composed of a weighted average of around 15 prominent global currencies, creating the underlying portfolio or “Unity Basket”. • Changes to the value of a currency in the Unity Basket will only have an impact on the overall Unity value proportional to that currency’s portfolio weighting. • The Unity could be launched by a combination of the European Central Bank, Bank of England or Federal Reserve. However, Unity supply must not be controlled by any single national government. • After its initial launch, market forces will ensure growth in demand and supply. • Preliminary demand is expected especially from countries with a high balance of trade, developing countries, consumers and small businesses. 2 UNITY (U) - A World Common Currency Solution By: A.Karim Afshar (PhD Finance) Introduction Exchange rate volatility has become one of the greatest obstacles to the world’s economic stability and growth. A great many discussions have taken place on how to combat money market attacks on national currencies and how to keep currency fluctuations within economically tolerable levels. These discussions assume that the world financial system and currencies are and...
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...Financial Management Assignment: Exchange Rate Risk Management As the world of business becomes increasingly global, multinational corporations (MNCs) are establishing the production and marketing operations in foreign countries. These MNCs face a variety of challenges. One of challenge faced by MNCs in foreign markets is fluctuations in currency exchange rates. Movements in exchange rates can cause instability in profit margins and significant losses to an MNC’s bottom line. Thus, exchange rate risk management is an integral part in MNC’s decisions about foreign currency exposure. Measuring and managing exchange rate risk exposure are important functions in reducing a MNC’s vulnerabilities from major exchange rate movements. In order to manage currency exchange rate risks, MNC often use financial instruments or currency derivatives. Required: 1. What are the types of exchange rate risks faced by the MNCs? 2. Understand the attempt for the use of foreign exchange derivatives (exchange rate risk management approaches) that can benefits the MNCs. Assignment required student to demonstrate professional skills in research, presentation and communication with full references and an appropriate bibliography. * Assignment should be completed using a word processor and should be no more than 10 pages, using Arial 12, single spaced. * Submission should be a single word document. * This is an independent assessment, and it is unlikely that students will provide identical...
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...Benefits of the EURO 1. Transaction Costs: There will be no longer a cost involved in changing currencies; this will benefit tourists and firms who trade within the EURO area. It has been estimated that this benefit will be equal to 1% of GDP so will be quite significant. (this is sometimes known as frictional costs) 2. Price Transparency: With a common currency it will be easier to compare prices in different European countries because they would all be in Euros. This enables firms to source cheaper raw material and consumers to but cheaper goods For example, new car prices are much higher in the UK than elsewhere, a single currency could help reduce these price differentials. 3. Eliminating Exchange Rate uncertainty. Volatile swings in the exchange rate can destroy the profitability of exports. This undermines business confidence in investing. Therefore with a single currency business confidence should improve leading to greater trade and economic growth. 4. Improvement in Inflation Performance. The ECB which sets interest rates for the whole Eurozone area will be committed to keeping inflation low; countries with traditionally high inflation will benefit from this. However this point is debatable as countries outside the Euro have maintained low inflation. 5. Euro could emerge as a global trading currency 6. Inward investment Inward investment may increase from outside the EU as firms take advantage of lower transaction costs within the EU area. Recently the Chairman...
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...“Euro: A common currency used by many European countries. The euro was established in 1999 when 11 European countries adopted a common currency in order to facilitate global trade and encourage the integration of markets across national borders. Euro banknotes and coins began circulating in January 2002.” (The Financial Dictionary) “The euro was introduced in 1999 and became the official currency of participating nations in 2002. It was intended to remove the exchange rate risk of businesses participating in the EU's common market and free trade association. It has become one of the world's most important currencies. Proponents of the euro state that it is more valuable than the former currencies, while opponents say that it has made goods and services in their home countries more expensive. The euro's ISO 4217 code is EUR.” (The Financial Dictionary) According to the European Commission Euro currency, the euro is currently the single form of money shared by 17 of the European Union’s Member States, this makes up the euro area. The euro was introduced in 1999 and was a major leading step in European integration. The euro has many major benefits; some of these are the sharing of a common euro currency which is enabling the less expensive and simpler inter-nation trading. This common currency also allows less fluctuations and a lesser risk. In Global terms the U.S. dollar is the leading currency and now the euro is the second most important with the Sterling British...
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...under this systematic collection of policies is the adoption of the Euro currency over the national currencies of the member states out of which only the United Kingdom and Denmark have chosen to not follow in the footsteps of their fellow member countries. The European Monetary Union is essentially a complex but involved coordination of a common monetary policy amongst all members of the European union, accommodating fiscal and economic policies and most notably the currency common to all members, the Euro. This decision to form an exclusive and unified front was undertaken in December, of 1991, in the city of Maastricht in Netherlands and was later more firmly integrated in the Maastricht Treaty on the European Union. It has been designed as a tool to implement the full economic integration of the European Union and to complete the integration as one system, which started in 1957. Through this integration, the European Union hopes to gain the benefits of having a larger sized failsafe net, internal and cohesive efficiency combined together with the European Monetary Union, it would provide a robust and firm platform for the members of the union. Better employment rates, together with higher growth indicators, and solid economic stability are the expected outcomes of such a union however, its main objective remains to ensure the price stability within the region through the adoption of the common currency along with a total liberalization of movement of capital, the fixation...
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