Chapter 9 International monetary and financial environment Flashcards
Refers to all forms of money that are traded internationally, including foreign currencies, bank deposits, checks, and electronic transfers
foreign exchange
(largest financial market in the world)
Arises from changes and exchange rates and affects firms international business
Currency risk
When a firm protects itself against currency risk in the foreign exchange market
Hedging
How are exchange rates determined?
- economic growth
- inflation
- market psychology
- government intervention
Increase in value of goods and services the economy produces
Economic growth
(to accommodate this, nation, central bank increases money supply)
The unpredictable behavior of investors
Market psychology
(exchange rates are often affected by this)
The tendency of investors to mimic others actions
Herding
Occurs when investors buy stocks whose prices have been rising and vice versa
Momentum trading
Reduces the official value of a currency relative to other currencies
Evaluation
And undervalued currency can result in a
Trade surplus
(when a nations exports exceed import)
An increase in supply of a currency, ______ it’s price and vice versa
Decreases
- Agreement of 1944 aimed to stabilize exchange rates worldwide
- US dollar was pegged to gold and other currencies to the dollar
- System collapsed in 1971
Bretton woods agreement
International transactions require ___ to deal with huge sums of foreign exchange
firm
Facilities for trading securities (stocks) and debt (as in bonds)
National stock exchanges, and bond markets
Do you mainly with corporations or large businesses
Example = Bank of America
Commercial bank
