Copyright 2008 The McGraw-Hill Companies 25-1 Financing International Trade Capital and Financial...
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Copyright 2008 The McGraw-Hill Companies 25-1 Financing In ternational Trade Capital and Financial Ac count Flexible Exc hange Rates Fixed Exchan ge Rates Internationa l Exchange-R ates System Recent U.S. Trade Defici ts Last Word Key Terms End Show 25 Exchange Rates, the Balance of Payments, and Trade Deficits
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Copyright 2008 The McGraw-Hill Companies 25-3 Financing International Trade Capital and Financial Account Flexible Exchange Rates Fixed Exchange Rates International Exchange- Rates System Recent U.S. Trade Deficits Last Word Key Terms End Show Financing International Trade S.A. Export Transactions S.A. Import Transactions Balance of Payments The Current Account –Balance on Goods –Gold exports –Balance on Services –Trade Deficit –Trade Surplus –Other items –Balance on Current Account 25.1
Transcript of Copyright 2008 The McGraw-Hill Companies 25-1 Financing International Trade Capital and Financial...
Copyright 2008 The McGraw-Hill Companies25-1
Financing International TradeCapital and Financial AccountFlexible Exchange RatesFixed Exchange RatesInternational Exchange-Rates SystemRecent U.S. Trade DeficitsLast Word
Key Terms
End Show
25Exchange Rates, the Balance of Payments, and Trade Deficits
Copyright 2008 The McGraw-Hill Companies25-2
Financing International TradeCapital and Financial AccountFlexible Exchange RatesFixed Exchange RatesInternational Exchange-Rates SystemRecent U.S. Trade DeficitsLast Word
Key Terms
End Show
Chapter Objectives• How Currencies of Different Nations
are Exchanged When International Transactions Take Place
• About the Balance Sheet South Africa Uses to Account for the International Payments it Makes and Receives
• How Exchange Rates are Determined in Currency Markets
• The Difference Between Flexible Exchange Rates and Fixed Exchange Rates
• S.A. Trade Deficits
Copyright 2008 The McGraw-Hill Companies25-3
Financing International TradeCapital and Financial AccountFlexible Exchange RatesFixed Exchange RatesInternational Exchange-Rates SystemRecent U.S. Trade DeficitsLast Word
Key Terms
End Show
Financing International Trade• S.A. Export Transactions• S.A. Import Transactions• Balance of Payments• The Current Account
– Balance on Goods – Gold exports– Balance on Services– Trade Deficit– Trade Surplus– Other items– Balance on Current Account
25.1
Copyright 2008 The McGraw-Hill Companies25-4
Financing International TradeCapital and Financial AccountFlexible Exchange RatesFixed Exchange RatesInternational Exchange-Rates SystemRecent U.S. Trade DeficitsLast Word
Key Terms
End Show
Financial Account• Balance on Financial
Account–Net foreign direct investment–Net portfolio investment–Net other investment
• Balance-of-Payments Deficits and Surpluses–Official Reserves
Copyright 2008 The McGraw-Hill Companies25-5
Financing International TradeCapital and Financial AccountFlexible Exchange RatesFixed Exchange RatesInternational Exchange-Rates SystemRecent U.S. Trade DeficitsLast Word
Key Terms
End Show
Flexible Exchange Rates• Flexible or Floating Exchange
Rates• Fixed Exchange Rate system• Depreciation and Appreciation• Determinants of Exchange
Rates– Changes in Tastes– Relative Income Changes– Relative Price-Level Changes
• Purchasing-Power-Parity Theory– Relative Interest Rates– Speculation
25.1
Copyright 2008 The McGraw-Hill Companies25-6
Financing International TradeCapital and Financial AccountFlexible Exchange RatesFixed Exchange RatesInternational Exchange-Rates SystemRecent U.S. Trade DeficitsLast Word
Key Terms
End Show
Q0
Ran
d Pr
ice
of 1
Pou
nd
Quantity of Pounds
P
Flexible Exchange RatesThe Market for Foreign Currency (Pounds)
Dl
Sl
RandDepreciates(PoundAppreciates)
RandAppreciates(PoundDepreciates)
ExchangeRate: R2 = £1
R2
R3
R1
Ql
Copyright 2008 The McGraw-Hill Companies25-7
Financing International TradeCapital and Financial AccountFlexible Exchange RatesFixed Exchange RatesInternational Exchange-Rates SystemRecent U.S. Trade DeficitsLast Word
Key Terms
End Show
Q0
Ran
d Pr
ice
of 1
Pou
nd
Quantity of Pounds
P
Flexible Exchange RatesThe Market for Foreign Currency (Pounds)
Dl
Sl
ExchangeRate: R2 = £1
R2
R3
R1
Ql
D2
ExchangeRate: R3 = £1
BalanceOf Payments
Deficit
Q2
x ab
c
Copyright 2008 The McGraw-Hill Companies25-8
Financing International TradeCapital and Financial AccountFlexible Exchange RatesFixed Exchange RatesInternational Exchange-Rates SystemRecent U.S. Trade DeficitsLast Word
Key Terms
End Show
Flexible Exchange Rates• Flexible Rates and the
Balance of Payments• Disadvantages of
Flexible Exchange Rates• Uncertainty and
Diminished Trade• Terms-of-Trade Changes• Instability
Copyright 2008 The McGraw-Hill Companies25-9
Financing International TradeCapital and Financial AccountFlexible Exchange RatesFixed Exchange RatesInternational Exchange-Rates SystemRecent U.S. Trade DeficitsLast Word
Key Terms
End Show
Fixed Exchange Rates• Use of Reserves
– Currency Interventions• Trade Policies• Exchange Controls and Rationing
– Distorted Trade– Favoritism– Restricted Choice– Black Markets
• Domestic Macroeconomic Adjustments
Copyright 2008 The McGraw-Hill Companies25-10
Financing International TradeCapital and Financial AccountFlexible Exchange RatesFixed Exchange RatesInternational Exchange-Rates SystemRecent U.S. Trade DeficitsLast Word
Key Terms
End Show
International Exchange-Rate Systems
• The Gold Standard: Fixed Exchange Rates–Devaluation–Gold Flows–Domestic Macroeconomic
Adjustments–Collapse of the Gold
Standard
Copyright 2008 The McGraw-Hill Companies25-11
Financing International TradeCapital and Financial AccountFlexible Exchange RatesFixed Exchange RatesInternational Exchange-Rates SystemRecent U.S. Trade DeficitsLast Word
Key Terms
End Show
International Exchange-Rate Systems
• The Bretton Woods System– International Monetary Fund
(IMF)– IMF and Pegged Exchange
Rates• Official Reserves• Gold Sales• IMF Borrowing
– Fundamental Imbalances: Adjusting the Peg
– Demise of the Bretton Woods System
Copyright 2008 The McGraw-Hill Companies25-12
Financing International TradeCapital and Financial AccountFlexible Exchange RatesFixed Exchange RatesInternational Exchange-Rates SystemRecent U.S. Trade DeficitsLast Word
Key Terms
End Show
International Exchange-Rate Systems
• The Current System: The Managed Float–Managed Floating
Exchange Rates• In Support of the Managed Float
• Concerns With the Managed Float
Copyright 2008 The McGraw-Hill Companies25-13
Financing International TradeCapital and Financial AccountFlexible Exchange RatesFixed Exchange RatesInternational Exchange-Rates SystemRecent U.S. Trade DeficitsLast Word
Key Terms
End Show
Recent S.A Trade Deficits• Causes and
consequences of Trade Deficits–Higher Growth–Increased Current Consumption
–Increased S.A. Indebtedness
Copyright 2008 The McGraw-Hill Companies25-14
Financing International TradeCapital and Financial AccountFlexible Exchange RatesFixed Exchange RatesInternational Exchange-Rates SystemRecent U.S. Trade DeficitsLast Word
Key Terms
End Show
Speculation in Currency Markets
• Currency Purchases to Purchase Goods and Services
• Contributing to Currency Market Fluctuations
• Speculator’s Role and Activities• Smoothing Short-Term
Fluctuations• Absorbing Risk• Futures Market at Work• Positive Role Played Overall
Last
Word
Negative or Positive Influence on Currency Markets and Trade
Copyright 2008 The McGraw-Hill Companies25-15
Financing International TradeCapital and Financial AccountFlexible Exchange RatesFixed Exchange RatesInternational Exchange-Rates SystemRecent U.S. Trade DeficitsLast Word
Key Terms
End Show
Key Terms• balance of payments• current account• balance on goods an
d services• trade deficit• trade surplus• balance on current ac
count• capital and financial a
ccount• balance on capital an
d financial• balance-of-payments
deficits and surpluses
• official reserves
• flexible- or floating- exchange-rate system
• fixed-exchange-rate system
• purchasing-power-parity theory
• currency interventions
• exchange controls• gold standard• devaluation• Bretton Woods
system• International
Monetary Fund (IMF)• managed floating
exchange rates
Copyright 2008 The McGraw-Hill Companies25-16
Financing International TradeCapital and Financial AccountFlexible Exchange RatesFixed Exchange RatesInternational Exchange-Rates SystemRecent U.S. Trade DeficitsLast Word
Key Terms
End Show
Next Chapter Preview…
South Africa in the
Global Economy
