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International Monetary System • Learn how exchange rates affect domestic and international companies • Review factors that affect exchange rates • Learn how exchange rates are forecasted • Discuss how the international monetary system evolved and how it operates • Explain the European monetary system and assess its performance record Production Decisions Marketing Decisions Exchange Rates and Business Stability and Predictability Financial Decisions Factors That Determine Exchange Rates Law of One Price Products Are Entirely Produced within Each Particular Country Products Are Identical in Quality and Content in All Countries Factors That Determine Exchange Rates Parity of Purchasing Power Considering the Role of Inflation Understanding the Role of Interest Rates Added Costs Trade Barriers Parity of Purchasing Power Psychology Business Confidence Forecasting Exchange Rates Efficient Market View Inefficient Market View Forecasting Techniques Fundamental Analysis Technical Analysis Evolution of the International Monetary System Reducing ExchangeRate Risk The Gold Standard Imposing Strict Monetary Policies Correcting Trade Imbalances Advantages Collapse of the Gold Standard Devaluation of Currency Arbitrary Par Values Fixed Exchange Rates Built-In Flexibility The Bretton Woods Agreement The World Bank International Monetary Fund Special Drawing Rights 11% 11% 39% U.S. Dollar German Mark Japanese Yen British Pound 18% French Franc 21% Collapse of the Bretton Woods Agreement High U.S. Trade Deficit High U.S. Budget Deficit The Smithsonian Agreement Weakness of the U.S. Dollar The Managed Float System Jamaica Agreement Plaza Accord Louvre Agreement Exchange Rates Today • Pegged exchange rates • Limited flexibility exchange rates • More flexible exchange rates Recent Financial Crises The Debt Crisis Mexico’s Peso Crisis Southeast Asia’s Currency Crisis Future of the International Monetary System Reform of the IMF One World, Ready or Not The European Monetary System Set Rates of Exchange Minimize Inflation Promote Trade
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