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THE UNIVERSITY OF DODOMA

SCHOOL OF SOCIAL SCIENCES

DEPARTMENT OF ACCOUNTING AND FINANCE

COURSE NAME: INTERNATIONAL BUSINESS FINANCE

COURSE CODE: AF: 3O9

COURSE INSTRUTOR: KAJALE KASIKA

NATURE OF WORK: ASSIGNMENT

S/NO NAMES OF REG.NUMBER DEGREE SIGNATURE


PARTICIPANTS COURSE
01 SEREKI, MESACK T/UDOM/O8/05919 B.COM(ACC)
02 WEREMA, UPENDO T/UDOM/08/05949 B.COM(ACC)

Question;

Write on evolution of modern international monetary system and why we do study international
business finance.
Evolution is gradual development of something into a more complex or better form.
International monetary system are sets of internationally agreed rules, conventions and
supporting institutions that facilitate international trade, cross border investment and generally
the reallocation of capital between nation states. The evolution of the international monetary is
the general frameworks in which financial transaction are made among resident of different
countries. It is provide a brief account of gold, silver standard and bank note and their functional
and advantage in the international arena. Such a system is necessary to define a common
standard of value for the world’s currencies. These systems are as follows;

The Gold and Gold Bullion standards.

The first modern international monetary system was the Gold standard. Operating during the late
19th and 20th century, the Gold standard provide for the free circulation between nations of Gold
also is a monetary system in which economic unit of account is fixed weight gold.

The advantages of the system lay in its stabilizing influence. A nation that exported more than it
imported would receive gold in payment of the balance; such an influx of gold raised prices, and
thus lowered the value of the domestic currency. Higher prices resulted in decreasing the demand
for exports, an outflow of gold to pay for the now relatively cheap imports, and a return to the
original price level

A major defect in such a system was its inherent lack of liquidity; the world's supply of money
would necessarily be limited by the world's supply of gold. Moreover, any unusual increase in
the supply of gold, such as the discovery of a rich lode, would cause prices to rise abruptly. For
these reasons and others such as Second World War, great depression, the international gold
standard broke down in 1914.

Bretton Wood

The bretton wood system of pegged, but adjustable, exchange rate was a direct response to the
instability of the interwar period. Bretton wood was very different from the gold standard, it was
more administered than market-based; adjustment was coordinated through the international
monetary fund; there were rules rather than conventions and capital control were widespread.

Despite these institutional changes, surplus countries still resisted adjustment. Foreshadowing
present problems, countries often sterilized the impact of surpluses on domestic money supply
and price. Like today, these intervention were justified by arguing that imbalance were
temporary and that, in contract, the zero bound on reserve remained a binding constraint for
deficit countries, which eventually ran out of time.

The Breton Wood system finally collapsed in the early 1970s after U.S. policy became very
expansionary, its trade deficit unsustainable, and the loosening of capital controls began to put
pressure on fixed rates. Once again, all countries suffered from the aftershock.
The current hybrid system

After breakdown of the bretton wood system, the international monetary system reverted to more
decentralized, market-based model. Major countries floated their exchange rate, made their
currencies convertible, and gradually liberalized capital flows. In recent year, several major
emerging market adopted similar policies after experiencing the difficulties of managing pegged
exchange rate regime with increasingly open capital accounts, the move to more market-
determined exchange rates has increased control of domestic monetary policy and inflation,
accelerated the development of financial sectors, and, ultimately, boosted economic growth

International business finance is the branch of economics that studies the dynamics of
exchange rates, foreign investment and how these affect international trade. It also studies
international projects, international projects, and international investments and capital flows, and
trade deficits.

The following are reason for studying international business finance.

a) To know method available to finance international operation

Through this subject you can know how different method used international to make
payment in international trade examples of method which you learn is like paypal,
telegraphic transfer and letter of credit and how are used in financing international
operation.

b) To mitigate exchange-rate exposure

Through this subject it help the expert who deal with determining exchange rate to know
how to regulate the movement of exchange rate in the country hence it help to have
better balance of payment in country.

c) To analyze international financial market

Financial market is a mechanism which allow people to buy and sell financial security,
financial commodity and other fungible items, therefore through this subject it help a
person which kind of market in financial market to invest in order to maximize his profit,
because there is different kind like money and capital market

d) To know how to manage multinational financial system

Through this subject it help investor how invest in many different countries to know how
to manage the global market competion and many challenges like determining demand,
advertising, how to minimize transaction cost and how to manage the fluctuation in
currency
Conclusively I can say that in order to get more advantage on this study it is wise for
department to formulate it degree course in order to have many expert concern with
international finance.

REFERENCES;

Roth, P, (1996); Mastering Foreign Exchange and Money Markets, Pitman Publishing, London

Agman, T, et al, ed. (1984); The Future of International Monetary System

Horman, RD, (1987); The International Monetary system

Hsmilton, James D.(2005); The Gold Standard and Great depression.

Jonathan William with Joe Cribb and Elizabeth Errington, ed, (1997).Money a History British
Museum.