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Unformatted text preview: Chapters 9-11 THE CRISIS OF 2008- Economic Crisis of 2008 * Downturn began in the US * Home Mortgage Crisis * Bank Crisis * Led to global banking crisis * Global stock markets tumbled dramatically as a result of the crisis * Unemployment rate increased worldwide- 9.7% in US by March 2010 * What began as a US financial market trouble ended as global financial meltdown. MONEY- Money medium of exchange * Precious metal (gold, silver,..) standard- Currency * Today, international monetary system is divorced from any tangible medium such as precious metals * State prints its own money a hallmark of state sovereignty * Politics standard- The inevitable inflation * Value of currencies- Taxation- Exchange rate CURRENCIES- Convertible (hard) versus non-convertible currencies * Need convertible currency for conducting international trade- ex. Former Soviet Union, North Korea..- Hard Currency * Money that can be readily converted to leading world currency (which have relatively low inflation) * States maintain reserves of hard currency INTERNATIONAL CURRENCY EXCHANGE- Exchange rates often express in terms of the worlds most important (hard) currencies: * U.S. dollar * Japanese yen * EUs euro * Other currencies (Brazilian reals) depends on the value of each, relative to these world currencies * Exchange rates that most affect the world economy are those within the G7 states U.S. dollar, euro, yen, British pounds, and Canadian dollars CURRENCY EXCHANGE- Changes in the value over time are meaningful * Value of euro rises (or falls) relative to the dollar, because Euros are considered more (or less) valuable than before, the euro is said to be strong (weak) * Fixed exchange rates * Floating exchange rates * Managed float system snake in a tunnel * Government intervention in the currency market- Coordinated multinational intervention- Pegging: Argentina, China, and Hong Kong WHY CURRENCIES RISE AND FALL- Short term, exchange rates depend on speculative demand and supply of currencies- Long term, because of changes in the long-term real supply and demand of the currencies countries current account balance * Strong vs. weak currency- Non-economic reasons - Overvalued currency- Devaluation * As a policy: the case of china? MONETARY AND FISCAL POLICIES- Monetary policy: how much money to print * Carried out by the state mostly through the central bank * Interest Rate- Fiscal Policy: how much to tax and how much to spend * Government revenue and expenditures * Tax rate * States obligations * Redistribution/entitlement * Interference in the economy * Deficit Spending INTERNATIONAL FINANCIAL INSTITUTIONS- Created near the end of WW2 * The Bretton Woods system (1944)- International Bank for Reconstruction and Development (World Bank)- International Monetary Fund (IMF)- ITO-GATT-WTO THE WORLD BANK AND THE IMF- International Monetary Fund (IMF) * Coordinates international currency exchange, the balance of international payments, and national accounts...
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This note was uploaded on 01/24/2012 for the course INTA 1110 taught by Professor Tba during the Spring '08 term at Georgia Institute of Technology.
- Spring '08