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Lecture 16 Notes - Globalization International Monetary...

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Unformatted text preview: Globalization: International Monetary Relations What does the Wizard of Oz have to do with monetary relations? Published in 1900 Debate about whether the United States should move from the gold standard to a silver standard o Silver standard preferred by farmers o Gold standard preferred by industrialists A “parable on populism?” The Wizard of Oz: analogies “Oz” is the abbreviation for ounce Wicked Witch of the East as eastern industrialists and bankers Munchkins as average people Cowardly Lion as William Jennings Bryan Scarecrow as western farmer Tin Woodman as industrial worker They needed to work together in the populist cause Yellow brick road as the gold standard Dorothy’s silver slippers as the silver standard Emerald City as Washington, DC Puzzles Each country prices goods in its own currency. How are relationships among currencies managed? Does it matter how currencies are converted into one another? 1. Exchange rate terminology What are exchange rates? National monetary systems allow actors to use money to exchange goods and services. Governments establish a currency and regulate it. Note: early in US history, no national monetary system Currencies need to be exchanged for one another to engage in economic exchange across borders. The exchange rate is the price of one currency in terms of another. As of March 3, 2011, the exchange rate between the U.S. dollar and the euro is: o €1 = $1.40 o $1 = €0.72 Exchange rates Like any other price, exchange rates go up and down. When a currency goes up vis-à-vis another currency, it strengthens or appreciates : o eg, if $1 were to buy €1. When a currency goes down, it weakens or depreciates or is devalued : o eg, if $1 were to buy €0.50....
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Lecture 16 Notes - Globalization International Monetary...

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