跨国公司财务管理基础 (3)
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• Acquisition of gold is costly
–
Money supply ≡ available supply of gold
Chapter 3: The International Monetary System
7
3.B International Monetary System (2)
5源自文库
3.A Exchange Rate Systems (5)
Fixed-Rate System
– Governments maintain target exchange rates.
– Central banks buy/sell currency to increase (“revalue”)/decrease (“devalue”) exchange rates when exchange rates threaten to deviate from their stated par values by more than an agreed-on percentage. – Monetary policy becomes subordinate to exchange rate policy. – Group’s joint inflation rate should be accepted by all the members
Economic stability ≡ stable exchange rate Stable exchange rate (not necessarily) ≡ fixed exchange rate
With a fixed exchange rate:
– If monetary policies are inconsistent with the fixed rate currency crises will ensue – Scope of the monetary policies will be limited it may not be easy to absorb economic shocks
Gold as the medium of exchange
– – Durable, storable, portable, easily recognized, divisible, easily standardized Also, fixed in quantity for the short-term (therefore, not susceptible to manipulation)
Chapter 3
The International Monetary System
Chapter 3 Outline
A. Exchange Rate Systems
B. International Monetary System C. European Monetary System and Monetary Union
– Government controls dominate the allocative function of the foreign exchange market
Hybrid System – current international system consisting of free-float, managed-float, and pegged currencies.
Chapter 3: The International Monetary System 4
3.A Exchange Rate Systems (4)
Target Zone Arrangement
– Countries agree to adopt economic policies that maintain their exchange rates within a specific range.
• They print more and more paper money, decreasing the purchasing power of money – Printing money is virtually costless
Under gold standard
– Government must acquire more gold before it can issue more money
US prices rise
Foreign prices fall
US exports fall, imports rise
Balance of payments equilibrium End of gold flow
Chapter 3: The International Monetary System
8
3.B International Monetary System (3)
US prices fall
US balance of payments surplus
Foreign prices stay the same
– – – – As U.S. exchange rate falls, exports rise, causing BOP surplus and inflow of foreign gold. U.S. prices rise, foreign prices fall U.S. exports fall, foreign exports rise BOP equilibrium achieved
3
3.A Exchange Rate Systems (3)
Free (“clean”) Float
– Exchange rates are determined by currency supply and demand with no government intervention. – As economic parameters change, market participants adjust their current and expected future currency needs. – Shifts in currency needs in turn shift currency supply and demand schedules, as seen in Chapter 2.
Hybrid system
Chapter 3: The International Monetary System
2
3.A Exchange Rate Systems (2)
International Monetary System:
– Set of policies, institutions, practices, regulations, and mechanisms that determine the rate at which one currency is exchanged for another
– It is argued that if US, Germany and Japan made a target-zone arrangement, exchange rate volatility in international markets can be minimized.
Chapter 3: The International Monetary System
US exports rise, imports fall
US money supply rises
offset by flow of foreign gold to United States
Foreign exports fall, imports rise
Foreign money supply falls
Because the value of gold is fairly stable over time, the gold standard ensured longrun price stability for both individual countries and groups of countries. – – Fiat money: nonconvertible paper money, backed by the faith of the governments Governments often abuse:
Managed (“dirty”) Float
– Central banks intervene to reduce economic volatility.
– Three categories of intervention
1. Smoothing out daily fluctuations – central bank buys or sells currency to smooth exchange rate adjustments. 2. Leaning against the wind – measures taken to moderate or prevent short- or medium-term exchange rate fluctuations caused by random events. 3. Unofficial pegging – a country pegs the value of its currency to a foreign currency to protect the value of its exports.
Classical Gold Standard (1821-1914)
– Characterized by price-specie-flow mechanism • Changes in the price level in one country were offset by an automatic balance of payments (“BOP”) adjustment.
6
Chapter 3: The International Monetary System
3.B International Monetary System (1)
Gold Standard – participating countries fixed the prices of their currencies in terms of a specified amount of gold.
With a floating exchange rate:
– Economic shocks are more easily absorbed – But, the exchange rate may exhibit excessive volatility
Chapter 3: The International Monetary System
D. Emerging Market Currency Crises
Chapter 3: The International Monetary System
1
3.A Exchange Rate Systems (1)
Free float
Managed float
Target-zone arrangement Fixed-rate system
– Designed to minimize exchange rate volatility and enhance economic stability in participating countries. – Requires coordination of economic policy objectives and practices. – European Monetary System is the best example
–
Money supply ≡ available supply of gold
Chapter 3: The International Monetary System
7
3.B International Monetary System (2)
5源自文库
3.A Exchange Rate Systems (5)
Fixed-Rate System
– Governments maintain target exchange rates.
– Central banks buy/sell currency to increase (“revalue”)/decrease (“devalue”) exchange rates when exchange rates threaten to deviate from their stated par values by more than an agreed-on percentage. – Monetary policy becomes subordinate to exchange rate policy. – Group’s joint inflation rate should be accepted by all the members
Economic stability ≡ stable exchange rate Stable exchange rate (not necessarily) ≡ fixed exchange rate
With a fixed exchange rate:
– If monetary policies are inconsistent with the fixed rate currency crises will ensue – Scope of the monetary policies will be limited it may not be easy to absorb economic shocks
Gold as the medium of exchange
– – Durable, storable, portable, easily recognized, divisible, easily standardized Also, fixed in quantity for the short-term (therefore, not susceptible to manipulation)
Chapter 3
The International Monetary System
Chapter 3 Outline
A. Exchange Rate Systems
B. International Monetary System C. European Monetary System and Monetary Union
– Government controls dominate the allocative function of the foreign exchange market
Hybrid System – current international system consisting of free-float, managed-float, and pegged currencies.
Chapter 3: The International Monetary System 4
3.A Exchange Rate Systems (4)
Target Zone Arrangement
– Countries agree to adopt economic policies that maintain their exchange rates within a specific range.
• They print more and more paper money, decreasing the purchasing power of money – Printing money is virtually costless
Under gold standard
– Government must acquire more gold before it can issue more money
US prices rise
Foreign prices fall
US exports fall, imports rise
Balance of payments equilibrium End of gold flow
Chapter 3: The International Monetary System
8
3.B International Monetary System (3)
US prices fall
US balance of payments surplus
Foreign prices stay the same
– – – – As U.S. exchange rate falls, exports rise, causing BOP surplus and inflow of foreign gold. U.S. prices rise, foreign prices fall U.S. exports fall, foreign exports rise BOP equilibrium achieved
3
3.A Exchange Rate Systems (3)
Free (“clean”) Float
– Exchange rates are determined by currency supply and demand with no government intervention. – As economic parameters change, market participants adjust their current and expected future currency needs. – Shifts in currency needs in turn shift currency supply and demand schedules, as seen in Chapter 2.
Hybrid system
Chapter 3: The International Monetary System
2
3.A Exchange Rate Systems (2)
International Monetary System:
– Set of policies, institutions, practices, regulations, and mechanisms that determine the rate at which one currency is exchanged for another
– It is argued that if US, Germany and Japan made a target-zone arrangement, exchange rate volatility in international markets can be minimized.
Chapter 3: The International Monetary System
US exports rise, imports fall
US money supply rises
offset by flow of foreign gold to United States
Foreign exports fall, imports rise
Foreign money supply falls
Because the value of gold is fairly stable over time, the gold standard ensured longrun price stability for both individual countries and groups of countries. – – Fiat money: nonconvertible paper money, backed by the faith of the governments Governments often abuse:
Managed (“dirty”) Float
– Central banks intervene to reduce economic volatility.
– Three categories of intervention
1. Smoothing out daily fluctuations – central bank buys or sells currency to smooth exchange rate adjustments. 2. Leaning against the wind – measures taken to moderate or prevent short- or medium-term exchange rate fluctuations caused by random events. 3. Unofficial pegging – a country pegs the value of its currency to a foreign currency to protect the value of its exports.
Classical Gold Standard (1821-1914)
– Characterized by price-specie-flow mechanism • Changes in the price level in one country were offset by an automatic balance of payments (“BOP”) adjustment.
6
Chapter 3: The International Monetary System
3.B International Monetary System (1)
Gold Standard – participating countries fixed the prices of their currencies in terms of a specified amount of gold.
With a floating exchange rate:
– Economic shocks are more easily absorbed – But, the exchange rate may exhibit excessive volatility
Chapter 3: The International Monetary System
D. Emerging Market Currency Crises
Chapter 3: The International Monetary System
1
3.A Exchange Rate Systems (1)
Free float
Managed float
Target-zone arrangement Fixed-rate system
– Designed to minimize exchange rate volatility and enhance economic stability in participating countries. – Requires coordination of economic policy objectives and practices. – European Monetary System is the best example