Professional Documents
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Dhiraj Karki, Course Instructor, Global Business Management Dhiraj Karki, Course Instructor, Global Business Management
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Chapter Objectives
To describe the International Monetary Fund and its role in the determination of exchange rates To discuss the major exchange-rate arrangements that countries use To explain how the European Monetary System works and how the euro came into being as the currency of the euro zone To identify the major determinants of exchange rates To show how managers try to forecast exchange-rate movements To explain how exchange-rate movements influence business decisions
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Dhiraj Karki, Course Instructor, Global Business Management
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Dhiraj Karki, Course Instructor, Global Business Management
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Dhiraj Karki, Course Instructor, Global Business Management
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The Euro
European Monetary System (EMS): established by the EU (then the EC) in 1979 as a means of creating exchange rate stability within the bloc European Central Bank: established by the EU on July 1, 1998, to set monetary policy and to administer the euro Euro: the common European currency established on Jan. 1, 1999 as part of the EUs move toward monetary union as called for by the Treaty of Maastricht of 1992 European Monetary Union (EMU): a formal arrangement linking many but not all of the currencies of the EU Pluses and Minuses of the Conversion to the Euro The Euro and Global Financial Crisis
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Dhiraj Karki, Course Instructor, Global Business Management
Central Banks
Central banks are the key institutions in countries that intervene in foreign-exchange markets to influence currency values The Bank for International Settlements (BIS) in Switzerland acts as a central bankers bank. It facilitates communication and transactions among the worlds central banks A central bank intervenes in money markets by increasing a supply of its countrys currency when it wants to push the value of the currency down and by stimulating demand for the currency when it wants the currencys value to rise
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Dhiraj Karki, Course Instructor, Global Business Management Dhiraj Karki, Course Instructor, Global Business Management
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11/30/2012
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Dhiraj Karki, Course Instructor, Global Business Management Dhiraj Karki, Course Instructor, Global Business Management
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Foreign-Exchange Convertibility
Fully convertible currencies, often called hard currencies, are those that the government allows both residents and nonresidents to purchase in unlimited amounts Currencies that are not fully convertible are often called soft currencies, or weak currencies They tend to be the currencies of developing countries
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Dhiraj Karki, Course Instructor, Global Business Management Dhiraj Karki, Course Instructor, Global Business Management
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Exchange Controls
To conserve scarce foreign exchange, some governments impose exchange restrictions on companies or individuals who want to exchange money, such as
import licensing multiple exchange rates import deposit requirements quantity controls
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Dhiraj Karki, Course Instructor, Global Business Management
11/30/2012
Factors to Monitor
Major factors that managers should monitor when trying to predict the timing, magnitude, and direction of an exchangerate change include
the institutional setting fundamental analysis confidence factors events technical analysis
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Dhiraj Karki, Course Instructor, Global Business Management
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Dhiraj Karki, Course Instructor, Global Business Management
Future:
Latin America
Emerging market currencies should strengthen as commodity prices recover
Europe
The euro is gaining popularity and will take market share away from the dollar as the prime reserve asset
Asia
China is moving forward to establish the yuan as a major world currency
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Dhiraj Karki, Course Instructor, Global Business Management