Study Guides (380,000)
US (220,000)
UF (3,000)
GEB (10)
Study Guide

[GEB 3373] - Final Exam Guide - Ultimate 106 pages long Study Guide!


Department
Business Administration - General
Course Code
GEB 3373
Professor
Phalin Amanda
Study Guide
Final

This preview shows pages 1-3. to view the full 106 pages of the document.
UF
GEB 3373
FINAL EXAM
STUDY GUIDE

Only pages 1-3 are available for preview. Some parts have been intentionally blurred.

Only pages 1-3 are available for preview. Some parts have been intentionally blurred.

GEB 3373
The International Monetary System & the Balance of Payments
Chapter 7
History of the International Monetary System (IMS)
- Roots traced to gold/silver, used as media of exchange
- Beginning in 16th/17th centuries, coins traded on basis of relative gold/silver content
- Before gold/silver: salt, turmeric wrapped in coconut fibers, cacao, Parmigiano Reggiano
- Why do we need currency?
> Bartering is inefficient; requires you to find someone willing to take exactly what you
have in exchange for exactly what they have/you want
> “oles athig prole
The IMS
- Functions
> Governs how nations value/exchange currency
> Provides mechanism to correct payment/receipt imbalances
> Can ensure smooth conversion of foreign money into home currency
- Balance of Payments Accounting System
> Records international transactions
> “upplies iforatio aout eoo’s health
> Foreshadows likely changes in fiscal/monetary policies
> Can detect trade restrictions, higher r, inflation, decrease D, general cost of doing
business in nation
Evolution & Functioning of the Gold Standard
- Exchange rate: Price of one currency in terms of another
- Fixed exchange rate: Price of currency does not change relative to other currencies
- Gold standard
> A fixed exchange rate system because each country pegged (tied) value of
its currency A & B = (par value)B / (par value)A
- Par value = 4.247
- Par value $ = 20.67
- Fixed exchange rate between and dollar = 20.67/4.247 -> 1= $4.867
- Countries agree to buy/sell their paper currencies in exchange for gold on request of any
individual/firm
- Countries allow free export of gold bullion/coins
- Adopted in 1821 by UK
- Later adopted by major UK trading partners: Russia, Austria-Hungary, France, Germany, US
- “terlig poud sterlig: aother ae for Great Britai’s urre, the poud-Based Gold
Standard
> Transacting gold was expensive, slow
> Beause UK as orld’s doiat eooi/ilitar power, most firms
willing to be paid in or gold
> Strong international trust in , expanding British Empire
- London becomes dominant financial center
find more resources at oneclass.com
find more resources at oneclass.com
You're Reading a Preview

Unlock to view full version

Only pages 1-3 are available for preview. Some parts have been intentionally blurred.

Problems with the Gold Standard
- If the orld’s eed for $ ireases faster tha orld’s suppl of gold ireases, it does’t ork
- Two ways government can affect economy:
> Monetary policy (controlling size of money supply)
> Fiscal policy (changing taxing/spending)
- As fixed system, gold standard can eliminate ability to conduct monetary policy
- Is it realistic?
> 93% of top economistic, as polled by University of Chicago, say no
Collapse of Gold Standard
- Economic pressures of WWI -> atios ould’t aitai urreies’ par alues
- Post WWI, standard readopted
- Great Depression -> similar economic pressures
- Natios uale to aitai urreies’ par alues
- 1931: alloed to float urre’s alue deteried  its suppl/dead
- no longer redeemed for par value
- “terlig Era: “oe outries pegged tied urre to ₤
- Others pegged to US $ or French franc
- To stimulate exports & boost economy, nations devalued currencies and increase tariffs on
imports
- Recall that cheaper currency -> exports cheaper abroad -> exports increase -> boosts domestic
economy
- Note that if value of currency A increases, value of B must decrease & vice versa
- What if everyone devalues and increases tariffs?
> Beggar Thy Neighbor = No one wins
- WW2 -> Trade Collapse
Bretton Woods Era Begins
- 44 nations meet in 1944 in BW, NH
- Create system to avoid mistakes preceding WW2
- Agree to US dollar based gold standard
- Signed in July 1944, not long after D-Day
- Create International Bank for Reconstruction & Development aka World Bank
- Create International Monetary Fund
World Bank
- Initially financed post-WW2 reconstruction in Europe
- Accomplished by mid-1950s with help of Marshall Plan (large-scale, post-WW2 US aid program
to Europe)
- “ie the: Missio is to uild eooies of orld’s deelopig outries
The World Bank Group
- Lends only for produtie purposes e: ifrastruture, ot defiit fiaig
- Hard loans only makes loans if there is a reasonable expectation it will be repaid
- Soft loans those with higher risk of non-payment; cheaper loans with generous terms
- Focus on LDCs
- Prootes deelopet of outries’ priate setors
find more resources at oneclass.com
find more resources at oneclass.com
You're Reading a Preview

Unlock to view full version