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ch03 - Multinational Financial Management Alan Shapiro 9th...

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Multinational Financial Management Alan Shapiro 9 th Edition J.Wiley & Sons Power Points by Joseph F. Greco, Ph.D. California State University, Fullerton
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CHAPTER 3 The International Monetary System
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ALTERNATIVE EXCHANGE RATE SYSTEMS I. FIVE MARKET MECHANISMS A. Freely Floating (Clean Float) 1. Market forces of supply and demand determine rates. 2. Forces influenced by a. price levels b. interest rates c. economic growth 3. Rates fluctuate over time randomly. 3
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ALTERNATIVE EXCHANGE RATE SYSTEMS B. Managed Float (Dirty Float) 1. Market forces set rates unless excess volatility occurs, 2. Then, central bank determines rate. 4
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ALTERNATIVE EXCHANGE RATE SYSTEMS C. Target-Zone Arrangement 1. Rate Determination a. Market forces constrained to upper and lower range of rates. b. Members to the arrangement adjust their national economic policies to maintain target. 5
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ALTERNATIVE EXCHANGE RATE SYSTEMS D. Fixed Rate System 1. Rate determination a. Government maintains target rates. b. If rates threatened, central banks buy/sell currency. c. Monetary policies coordinated. 6
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ALTERNATIVE EXCHANGE RATE SYSTEMS D. Fixed Rate System (con’t) 2. Some Government Controls: a. On global portfolio investments. b. Ceilings on direct foreign direct insurance. c. Import restrictions. 7
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ALTERNATIVE EXCHANGE RATE SYSTEMS E. Current System 1. A hybrid system a. Major currencies: use freely-floating method b. Others move in and out of various fixed-rate systems 8
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A BRIEF HISTORY OF THE INTERNATIONAL MONETARY SYSTEM I. THE USE OF GOLD A.
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