International finance and investments
This presentation is the property of its rightful owner.
Sponsored Links
1 / 13

International Finance and Investments PowerPoint PPT Presentation


  • 74 Views
  • Uploaded on
  • Presentation posted in: General

International Finance and Investments. What’s different about Int’l Finance?. 1. 2. 3. 4. 5. History of International Monetary System. 1. Bretton Woods agreement in 1944 2. High US inflation in sixties 3. Dollar devaluation in 1971 4. Flexible exchange rates 1973.

Download Presentation

International Finance and Investments

An Image/Link below is provided (as is) to download presentation

Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author.While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server.


- - - - - - - - - - - - - - - - - - - - - - - - - - E N D - - - - - - - - - - - - - - - - - - - - - - - - - -

Presentation Transcript


International finance and investments

International Finance and Investments


What s different about int l finance

What’s different about Int’l Finance?

  • 1.

  • 2.

  • 3.

  • 4.

  • 5.


History of international monetary system

History of International Monetary System

  • 1. Bretton Woods agreement in 1944

  • 2. High US inflation in sixties

  • 3. Dollar devaluation in 1971

  • 4. Flexible exchange rates 1973


Exchange rate regimes

Exchange Rate Regimes

  • 1. Free Float ~ $/€, $/£, SF/$

  • 2. Managed Float ~ ¥/$

  • 3. Crawling Peg ~ RMB/$

  • 4. Fixed Rate ~ HK$/$

  • 5. No National Currency ~ Ecuador & Panama use the US dollar; San Marino & Montenegro use the euro

  • 6. Monetary Union ~ eurozone


Conventional fx rate quotations

Conventional FX Rate Quotations

  • 1. €1.3210 ~ means the number of US dollars per euro, or $/€

  • 2. £1.5022 ~ means the number of US dollars per pound, or $/£

  • 3. ¥99.63 ~ means the number of Japanese yen per US dollar, or ¥/$

  • 4. Rmb6.1206 ~ means the number of Chinese yuan per US dollar, or Rmb/$


Forecasting future exchange rates

Forecasting Future Exchange Rates

  • 1. Balance of Payments

    • Current Account ~ trade, services, interest payments

    • Capital Account ~ financial investments, fixed investments

    • Changes in International Reserves ~ foreign currencies, SDRs, Gold and other commodities

    • Errors and Omissions

    • BOP means net of all the above is ZERO.


Forecasting future exchange rates1

Forecasting Future Exchange Rates

  • 2. Use Inflation Differentials

  • Assume that the current rate is €1.3200 and inflation in the United States is 2% while inflation in the eurozone is 1%. What will be the exchange rate for euros be one year from today?

  • Answer: 1.3200 x (1.02/1.01) = 1.3331


Toyota japan sells a car priced in us dollars to a buyer in oregon

Toyota, Japan sells a car, priced in US dollars to a buyer in Oregon

  • ToyotaOregon Buyer

  • Bank of JapanUS Treasury Dept.


Balance of payments

Balance of Payments

  • 1. Japan exported a car ~ Current Account Surplus

  • 2. Japan bought a US$ T-bill ~ Capital Account Deficit

  • 3. The US imported a car ~ Current Account Deficit

  • 4. The US sold a T-bill~ Capital Account Surplus

  • 5. Net, BOP for both countries is ZERO


Toyota japan sells a car priced in yen to a buyer in oregon

Toyota, Japan sells a car, priced in yen to a buyer in Oregon

  • ToyotaOregon Buyer

  • US Bank

  • Bank of Japan US Try. Dept.


Toyota builds invests a factory in oregon

Toyota builds (invests) a factory in Oregon

  • ToyotaOregon

  • US Bank

  • Bank of Japan US Try. Dept.


Balance of payments1

Balance of Payments

  • 1. Japan makes a Foreign Direct Investment (FDI) ~ Capital Account Deficit

  • 2. Japan sells a T-bill back to US Treasury Dept. ~ Capital Account Surplus

  • 3. US receives direct investment ~ Capital Account Surplus

  • 4. US buys a T-bill from Japan ~ Capital Account Deficit


Bop and gdp connection

BOP and GDP Connection

  • C + I + G + (X-M) = GDP = C + S + T

  • C + I + G + (X-M) = C + S + T

  • I + G + (X-M) = S + T

  • (I –S) + (G-T) + (X-M) = 0

  • (X-M) + (CI – CO) + ∆Int. Res. + (E&O) = 0

  • (I – S) + (G-T) + (X-M) = (X-M) + (CI – CO)

  • (I – S) + (G – T) = (CI – CO)

  • (I – S) + (G – T) + (CO – CI) = 0


  • Login