INTERNATIONAL MONETARY SYSTEM Flashcards
WHY INTERNATIONAL MONETARY EXCHANGE?
The power of the dollar->most pow currency->in a glob ec maintenance the richest ec is the strongest and most NB—>bc have strongest voice on monetary policy, +bc every country wants to trade w/ them.
G7=biggest glob economies->G20=G7 +7 other countries+ EU—> idea to keep the glob monetary system+glob trade system stable.
Problem of the dollar: USD is most reliable curr to depend on when economies crash (eg Zim dollarised in 2009).
Foreign Currency exchange is NB bc: facilitates foreign investments (both direct and portfolio), fac private and pub int lending and borrowing, fac cross-border transactions+activities (int tourism)
Foreign exchange market=where curr traded->London, NY, Tokyo, Frankfurt all major financial centers that host major FEM.—>the process of offering and bidding foreign curr often determine the exchange rate
TYPES OF FOREIGN EXCHANGE RATE
Floating system: >most common>exchange rate det by rage supply+demand of the curr>no gov involvement>most likely for major countries>flexible->provides little exchange-rate stability, but give gov freedom to manage dom ec—>very laissez-faire
Fixed system:> gov est a fixed price for their curr in relation to others>gov intervene to buy and sell curr using the foreign exchange reserves (they buy and sell own curr using another curr>gov use monetary and fiscal policy measures to achieve desired ER for their curr>reliable->offer greater stability (fight inflation +attain competitive edge)
BALANCE OF PAYMENTS
Record of all financial transactions in int syst->comprised of current acc, capital acc, financial acc, others.
>CA:trade balance (receipt from imports and exports)->how much was made->net income receipts from assets (prev investments int)
>CapA: inflow/outflow of FDI, foreign portfolio investments and other financial assists->loans made/received.
>FA: records of the flows if assets and liabilities from 1 country to another.
>Other: unrecorded + unspecified transactions->mostly illicit flows from questionable activities
