Explain the causes of the global financial and economic crisis that started in the U.S. in 2007. What effect did it have on the global economy? How did the global economy recover? What kind of fiscal and monetary policies were implemented? What are the challenges that remain for the global economy?Your well-written paper should meet the following requirements:7 pages in lengthSupport your analysis by referencing and citing at least 5 scholarly sources in addition to embedding course material concepts and principles. Use APA style guidelines, citing references as appropriate.
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Chapter 9
The International
Monetary and
Financial Environment
International Business: The New Realities
S. Tamer Cavusgil, Gary Knight, John R. Riesenberger
Copyright © 2017, 2014, 2012 by Pearson Education, Inc. All rights reserved. This publication is protected by Copyright, and permission should be obtained from the
publisher prior to any prohibited reproduction, storage in a retrieval system, or transmission in any form or by any means, electronic, mechanical, photocopying, recording,
or likewise.
Outline
• The European Union and the Euro
• Exchange Rates and Currencies in International Business
• How Exchange Rates are Determined
• Emergence of the Modern Exchange Rate System
• The Monetary and Financial Systems
• Key Players in the Monetary and Financial System
• You Can Do It Recent Grad in IB: Maria Petit
• The Global Debt Crisis
• Closing Case: Financial Contagion and the Global Financial
Crisis
Copyright © 2017, 2014, 2012 by Pearson Education, Inc. All rights reserved. This publication is protected by Copyright, and permission should be obtained from the publisher prior
to any prohibited reproduction, storage in a retrieval system, or transmission in any form or by any means, electronic, mechanical, photocopying, recording, or likewise.
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Objectives
• 9.1 Learn about exchange rates and currencies in
international business.
• 9.2 Explain how exchange rates are determined.
• 9.3 Understand the emergence of the modern
exchange rate system.
• 9.4 Describe the monetary and financial systems.
• 9.5 Identify the key players in the monetary and
financial systems.
• 9.6 Understand the global debt crisis.
Copyright © 2017, 2014, 2012 by Pearson Education, Inc. All rights reserved. This publication is protected by Copyright, and permission should be obtained from the publisher prior
to any prohibited reproduction, storage in a retrieval system, or transmission in any form or by any means, electronic, mechanical, photocopying, recording, or likewise.
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The European Union and the Euro
• 9-1. What benefits does using a single currency, the
euro, provide to European countries?
• 9-2. What challenges does the European Central Bank
face in developing monetary policy for the EU?
• 9-3. What is the effect of a weak euro on European
exporters? What is the effect on European
consumers?
Copyright © 2017, 2014, 2012 by Pearson Education, Inc. All rights reserved. This publication is protected by Copyright, and permission should be obtained from the publisher prior
to any prohibited reproduction, storage in a retrieval system, or transmission in any form or by any means, electronic, mechanical, photocopying, recording, or likewise.
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Exchange Rates and Currencies in
International Business
• Convertible and Nonconvertible Currencies
• Foreign Exchange Markets
• Currency Risk
▪ Fluctuating exchange rates
Copyright © 2017, 2014, 2012 by Pearson Education, Inc. All rights reserved. This publication is protected by Copyright, and permission should be obtained from the publisher prior
to any prohibited reproduction, storage in a retrieval system, or transmission in any form or by any means, electronic, mechanical, photocopying, recording, or likewise.
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How Exchange Rates are Determined
• Economic Growth
• Inflation and Interest Rates
• Market Psychology
• Government Action
Copyright © 2017, 2014, 2012 by Pearson Education, Inc. All rights reserved. This publication is protected by Copyright, and permission should be obtained from the publisher prior
to any prohibited reproduction, storage in a retrieval system, or transmission in any form or by any means, electronic, mechanical, photocopying, recording, or likewise.
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Emergence of the Modern Exchange
Rate System
• The Bretton Woods Agreement
▪ International Monetary Fund (IMF)
▪ World Bank
• The Modern Exchange Rate System
▪ The Floating Exchange Rate System
▪ The Fixed Exchange Rate System
Copyright © 2017, 2014, 2012 by Pearson Education, Inc. All rights reserved. This publication is protected by Copyright, and permission should be obtained from the publisher prior
to any prohibited reproduction, storage in a retrieval system, or transmission in any form or by any means, electronic, mechanical, photocopying, recording, or likewise.
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The Monetary and Financial Systems
• International Monetary System
• Global Financial System
• Causes of integration of financial and monetary
activity
▪ The evolution of monetary and financial regulations
worldwide.
▪ The development of new technologies and payment
systems and the use of the Internet in global financial
activities.
▪ Increased global and regional interdependence of financial
markets.
▪ The growing role of single-currency systems, such as the
euro.
Copyright © 2017, 2014, 2012 by Pearson Education, Inc. All rights reserved. This publication is protected by Copyright, and permission should be obtained from the publisher prior
to any prohibited reproduction, storage in a retrieval system, or transmission in any form or by any means, electronic, mechanical, photocopying, recording, or likewise.
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Key Players in the Monetary and
Financial Systems
Exhibit 9.4 Key Participants and Relationships in the Global Monetary and Financial Systems (Cavusgil, 2016, p.242)
Copyright © 2017, 2014, 2012 by Pearson Education, Inc. All rights reserved. This publication is protected by Copyright, and permission should be obtained from the publisher prior
to any prohibited reproduction, storage in a retrieval system, or transmission in any form or by any means, electronic, mechanical, photocopying, recording, or likewise.
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The Global Debt Crisis
• Fiscal imbalances are an important source of risk and
uncertainty in the global business environment
• Debt has substantially increased in major advanced
economies … by excessive government spending and
insufficient revenues
• Bottom line: Without significant adjustments, most advanced economies face serious threats to fiscal
solvency
Copyright © 2017, 2014, 2012 by Pearson Education, Inc. All rights reserved. This publication is protected by Copyright, and permission should be obtained from the publisher prior
to any prohibited reproduction, storage in a retrieval system, or transmission in any form or by any means, electronic, mechanical, photocopying, recording, or likewise.
10
Closing Case
Financial Contagion and the Global
Financial Crisis
Copyright © 2017, 2014, 2012 by Pearson Education, Inc. All rights reserved. This publication is protected by Copyright, and permission should be obtained from the publisher prior
to any prohibited reproduction, storage in a retrieval system, or transmission in any form or by any means, electronic, mechanical, photocopying, recording, or likewise.
11
Summary
• Exchange rates and currencies in international
business
• How exchange rates are determined
• Emergence of the modern exchange rate system
• The monetary and financial systems
• Key players in the monetary and financial systems
• The global debt crisis
Copyright © 2017, 2014, 2012 by Pearson Education, Inc. All rights reserved. This publication is protected by Copyright, and permission should be obtained from the publisher prior
to any prohibited reproduction, storage in a retrieval system, or transmission in any form or by any means, electronic, mechanical, photocopying, recording, or likewise.
12
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