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MGMT 1035 > Final MGMT 1035: Week 9 > Flashcards

Final MGMT 1035: Week 9 Flashcards

Global Finance

1
Q

What is money?

A

Any generally accepted medium of exchange which enables a society to trade goods without the need for barter; any objects or tokens regarded as a store of value and used as a medium of exchanges

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2
Q

Forms of Money?

A

o Coins: valued for metal content or representative tokens
o Paper Money: issued to represent values, from ancient China to modern societies
o digital currency: exchanged as information, rather than physical money
All of these work on with shared consensus of value.

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3
Q

Three kinds of money?

A

commodity, token, fiat

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4
Q

Fiat Money?

A

money issued by the government that is not backed by gold or another commodity but rather by declaration of the issuing government

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5
Q

The Big Mac Index illustrates…

A

Purchasing-Power Parity

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6
Q

The U.S. Federal Reserve was created in response to what crisis?

A

The 1907 financial Crisis.

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7
Q

The Treaty which created the clear rules for the creation of a common European currency was…

A

The Maastricht Treaty

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8
Q

When it was created in 1694 the purpose of the Bank of England was to…

A

Raise money for the Navy

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9
Q

Potosi is situated in which country?

A

Bolivia

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10
Q

Globally, the most popular form of exchange rate is…

A

Managed Floating

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11
Q

The Canadian dollar is an example of…

A

Fiat money

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12
Q

The style of bank system in Canada is best decribed as…

A

branch banking

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13
Q

Actual Euro notes and coins began to be distributed in…

A

2002

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14
Q

What was the first city of capitalism?

A

Potosi for it supplied the primary ingredient of capitalism money

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15
Q

What changed the nature of trade with China and other parts of Asia and drove Europe to seek their own colonial opportunities?

A

Spanish silver

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16
Q

What was the global economic impact of gold and silver from South and Central America?

A

The influx of gold and silver changed global economies, transitioning Europe to a cash-based system. This shift facilitated the development of capitalism focused on monetary exchange rather than barter.

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17
Q

What country’s the world’s leading sources of lithium?

A

Potosi, Bolivia
(influence on capitalism)

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18
Q

What was the first central bank?

A

Bank of England, the model for most Central Banks, was formed in 1694

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19
Q

Why was the Bank of England formed?

A

Designed to raise money for the government to finance a navy

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20
Q

What is the US central bank?

A

Federal Reserve created, 1913

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21
Q

What is the role of the Federal Reserve?

A
  1. Maximize employment
  2. Stabilize Prices
  3. Moderate Long-term interest rates
    (Regulate banks and supervised, approved financial mergers, and stabilized the financial system)
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22
Q

Why was the Federal Reserve created?

A

response to financial cries of 1907 and a desire to ease ups and down in the economy

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23
Q

Who helped recover the financial crisis for the federal reserve?

A

JP Morgan, was given 30 million dollars and told him to fix the New York banking systems  survived the crisis

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24
Q

What was the financial crisis of 1907, leading to the federal reserve?

A

Enter real estate transactions that didn’t go as planned and faced a situation where they didn’t have enough cash to meet deposits, leading to a failure for a bank

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25
Q

How did the British Government help the financial crisis of 1907?

A

looked to government for support and federal government gave them about 30 million dollars

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26
Q

Who helped create the Federal Reserve, and helped which state?

A

JP Morgan, New York

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27
Q

When was the Federal Reserve Act?

A

1913

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28
Q

What was the Federal Reserve Act?

A

It was implemented to establish economic stability in the U.S. by introducing a central bank to oversee monetary policy, shaping the U.S. financial system.

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29
Q

When did Canada abandoned the gold standard?

A

in 1931  after Great Depression allowing Canda to reinflate economy

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30
Q

What’s the Royal Commission?

A

established in 1933 to study issue of central bank

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31
Q

When was the Bank of Canada established?

A

1935

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32
Q

What is the role of the bank of Canada?

A

control Canada’s monetary supply and moderate inflation.

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33
Q

When was a standardized currency introduced in Canada?

A

1950

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34
Q

When and where did chartered banking begin in British North America?

A

Chartered banking began with the Bank of Montreal in 1817, followed by others like the Bank of Nova Scotia in 1832.

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35
Q

How did the Canadian government structure the banking system?

A

The government encouraged a branch banking system dominated by small banks, which grew into the “Big 5” controlling branches across Canada.

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36
Q

How did banking in Canada differ from the U.S.?

A

Canada-> centralized branch banking system

U.S. -> created a decentralized system of many small banks.

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37
Q

How do the Chartered Banks in Canada operate?

A
  • take deposits and make loans
  • banks operate under charter issued by the federal government
  • originally banks issued their own bills, supported by their holding of gold or other assets
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38
Q

What was the significance of the 1967 Bank Act revisions in Canada?

A

revisions removed the 6% annual interest rate ceiling on personal loans and allowed banks to enter the mortgage field.

39
Q

What company came about after the Bank Act?

A

Canadian Deposit Insurance Company

40
Q

What triggered stronger banking regulations in Canada after 1923?

A

The failure of the Home Bank in 1923

leading to reforms that strengthened the banking system—essential during the 1929 Great Depression.

41
Q

What was the role of the 1964 Royal Commission on Banking and Finance (Porter Commission)?

A

more open and competitive banking system

42
Q

What key changes followed the 1964 Porter Commission recommendations?

A

enter the mortgage market, breaking into a sector previously dominated by mortgage brokers

43
Q

The Euro is the official currency of how many members of the EU?

A

20 out of 27

44
Q

What’s Differentiated Integration?

A

not all members states participate in all EU policies to the same degree or at the same time

45
Q

What was significant of the 1957 Treaty of Rome?

A

set up the European Economic Community bringing together Belgium, Germany, France, Italy, Luxembourg and the Netherlands to work together towards integration and economic growth through trade.

46
Q

European Economic Community (EEC)

A

Outlines measures to promote coordination in economic and monetary matters

47
Q

What’s the currency snake?

A

an exchange rate system that operated between various member countries of the EEC during the 1970s, in which exchange rates between the currencies of the participating states were only allowed to fluctuate within a restricted range

48
Q

Bretton Woods Agreement

A

Under the Bretton Woods system, the external values of foreign currencies were fixed in relation to the U.S. dollar
1969
$35/ounce

49
Q

1970 Werner Repo

A

gradual replacement of national currency with common European currency

50
Q

Economists Approach of the EU

A

Germany and Netherlands: economic convergence before (precondition) monetary integration

51
Q

“Monetarist Approach”:

A

“Monetarist Approach”: monetary integration leads to economic convergence

52
Q

“Monetarists”:

A

like France, Belgium and Luxembourg believe that monetary integration will naturally push the Member States’ economies towards grater uniformity

53
Q

When did the Bretton Woods system by US end?

A

1971, leading to creation of currency snake

54
Q

When was the currency snake created?

A

1972: : allowing the currencies of the Member States to be allowed to fluctuate against each other within a margin limited to 2.25%, others states currencies are allowed to peg one another

55
Q

Pegged Currency

A

a currency whose value is controlled so that it stays at a particular level in relation to another

56
Q

What led to the failure of the currency snake?

A

1973, oil crisis
(OPEC) begins restricting oil exports to much of the Western world

57
Q

Which countries joined the EU in 1973?

A

Denmark, Ireland, and the United Kingdom

58
Q

What was the significance of the 1969 Hague Summit in the context of European integration?

A

The 1969 Hague Summit relaunched European integration, tasking Luxembourg’s PM Pierre Werner with drafting a plan for economic and monetary union to address Bretton Woods’ breakdown.

59
Q

Who was Pierre Werner, and what was his contribution to European integration?

A

Pierre Werner was Luxembourg’s Prime Minister and Minister of Finance. In 1969, he was tasked with drafting a plan to establish an economic and monetary union for Europe, which became the foundation for the common European currency.

60
Q

What was the purpose of the Werner Report of 1970?

A

proposed the gradual replacement of national currencies with a common European currency

61
Q

What were the key conditions set out in the Werner Report for achieving an economic and monetary union?

A
  • Stronger coordination of economic policies
  • Free movement of capital
  • Fixed exchange and rates and common systems of central banks
62
Q

Why did the Bretton Woods System crash?

A

Capital immobility, in turn, hindered trade among countries

63
Q

What was the long-term impact of the Werner Report on the European Union?

A

The Werner Report laid the groundwork for the creation of the Economic and Monetary Union (EMU), eventually leading to the introduction of the euro as a common European currency in 1999.

64
Q

What long-term impact did the European Monetary System (EMS) have on European integration?

A

eventual introduction of the euro in 1999

65
Q

What role did Helmut Schmidt and Valéry Giscard d’Estaing play in the history of European integration?

A

were instrumental in bridging the divide between Germany and France on monetary issues

efforts were key to the proposal and establishment of the European Monetary System (EMS)

66
Q

Who proposed the 1978 European Council Copenhagen?

A

Chancellor Helmet Schmidt and the French President Valery Giscard d’

67
Q

The European Monetary System (EMS)

A

an adjustable exchange rate arrangement set up in 1979 to foster closer monetary policy cooperation between members of the European Community (EC).

68
Q

When does EMS enter into force ?

A

1979

69
Q

What are the two keys of EMS?

A
  1. Virtual ‘European currency unit’ (ECU)  replaces the dollar
  2. Exchange rate mechanism  based on fix but adjustable rates fluctuate by 2.25% above and below central rate
70
Q

1986- European Act

A

creating a single currency (the euro)

71
Q

1989- Delors Report:

A

committee led by President of the European Commission, Jacques Delors, proposes the implementation of the Economic and Monetary Union (EMU)

72
Q

Which EU member is still reluctant to give up its strong currency?

A

Germany

73
Q

1992- Maastricht Treaty

A

creation of the European Union

74
Q

Which country rejected the treaty?

A

Denmark

75
Q

During what stage of the EMU was the creation of the European Monetary Institute

A

stage 2, 1994

76
Q

How many countries joined in 1998 and became eligible to join the monetary union on the basis of the convergence criteria?

A

11: Austria, Belgium, Finland, France, Germany, Ireland, Italy, Spain, Portugal, Luxembourg, and Netherlands

77
Q

Who didn’t fulfil the requirements and who opted out?

A

-UK and Denmark: obtained opt-outs
-Greece and Sweden: don’t fulfill conditions to join

78
Q

What’s the convergence criteria to join the EU?

A

Convergence Criteria:
- Exchange rate stability
- Limits to public deficit and debt
- Durable convergence
- Price stability

79
Q

When did Euro coins and banknotes officially started to circulate?

A

January 1, 2002

80
Q

advantages of the EURO

A
  • Reduces exchange rate risks for European companies.
    • Lowers borrowing costs for governments and businesses.
81
Q

Purpose of the EURO

A

o promote growth, stability, and economic integration in Europe.

82
Q

Whats the central bank of the EU?

A

European Central Bank

83
Q

What are the challenges preventing the euro from overtaking the dollar globally?

A
  1. Limited use in commodities markets (e.g., oil, which is priced in dollars).
  2. A lower share in foreign-exchange reserves compared to the dollar.
  3. Reliance on the dollar during economic crises undermines confidence in the euro’s stability.
84
Q

What are the advantages of the euro for European companies and governments?

A
  1. For European Companies: The euro reduces exchange rate risks, simplifying trade and financial transactions within the eurozone.
  2. For Governments and Businesses: It lowers borrowing costs by providing access to a large, stable currency market.
85
Q

Who issued bonds to support EU economies during the pandemic?

A

Next Generation EU

86
Q

When did the UK leave the EU?

A

2016, under Brexit Vote

87
Q

What are the Main Currency Systems?

A
  • Free flow
  • Managing floating exchange rate
  • Semi-fixed currency (crawling peg)
  • Fully-fixed exchange rate (hard peg )
  • Currency board system (hard peg)
88
Q

What is Purchasing-Power Parity (PPP)?

A

Big Mac Index: invented by The Economists in 1986
- the notion that in the long run exchange rated should move towards the rate that would equalize the prices of an identical basket of goods and services in any two countries

89
Q

What’s PPP’s role in the Big Mac Index?

A

Role in Big Mac Index: The Big Mac index is based on PPP, using the price of a Big Mac as a benchmark to compare currency values. If a Big Mac is cheaper in one country than in another (after converting currencies), that currency is considered undervalued.

90
Q

What is used instead of the Big Mac Index and Why?

A

GDP-per-Person: capita provides a more accurate picture of a country’s economic capacity and currency value. This version considers factors like income levels and economic productivity, which influence currency value more directly than consumer price differences.

91
Q

What are some limitations of the Big Mac Index?

A

is too simplistic for currency speculation because it doesn’t account for economic complexities like wage levels, productivity, inflation, and broader economic stability.

92
Q

Dollar System

A

network of global trade, finance, and debt predominantly conducted in U.S. dollars

93
Q

Dollar Power

A

” refers to the dollar’s capacity to influence global economics through its dominant role in trade, finance, and monetary policy, often reinforcing the U.S.’s economic influence worldwide

94
Q
A

MGMT 1035 (4 decks)

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