1. Describe the shifts in the world economy over the past 30 years. What are the implications of these shifts for international business based in Great Britain? North America? Hong Kong? Answer: The world economy has shifted dramatically over the past 30 years. We have been moving away from a world in which national economies were relatively self- contained entities, isolated from each other by barriers to cross- border trade and investments; by distance, time zones, and language; and by national differences in government regulation, culture, and business systems. As late as the 1960s, four stylized facts described the demographics of the global economy. The first was U.S. dominance in the world economy and world trade. The …show more content…
Such a process can be very time consuming and imprecise, without, of course, having a market currency price to begin with. The exchange-rate system is an important topic in international economic policy. Policymakers and journalists often seem to treat the choice of exchange-rate system as one of the most important economic policy choices that a national government makes, on a par with free international trade. Under most circumstances and for most countries, a system of freely floating exchange rates is likely to be a better choice than attempting to peg the exchange rate. Consequences regarding the international businesses and the flow of trade and investment among the three countries are given below as benefits and drawbacks of holding fixed exchange rate system- Benefits in the international businesses and the flow of trade and investment: Elimination of the Costs of Foreign Exchange Transactions: Upon the implementation of a Single Currency, and the gradual disappearance of the foreign exchange market in those countries, the infrastructure can be dismantled and utilized for other purposes. Elimination of the Need to Maintain Foreign Exchange Reserves: With no need to defend an exchange rate and no need to thwart an externally sourced currency crisis and no need to defend against speculators, there would be no need for the Central Bank of those three countries to
The U.S. economy has experienced a healthy development as well as a downturn numerous times in more than 200 years since the founding of the United States. During the 1970’s, the second decline drastically decreased the international competitiveness of U.S. commodities and capital occurred that caused havoc across our nation. In early years the United States dominated many export markets for much of the postwar period, a result of its inherent strengths as a result America advanced technology and manufacturing techniques (Foreign Trade and Global Economic Policies. 2008). By the 1970’s the gap between the United States and other countries was narrowing due to competitiveness and the shock wave that struck from oil prices, a worldwide recession
The falling of the Berlin Wall in November 9, 1989 signifies that the world has become a single space without barriers that prevents or slows down international business (Friedman, 2005). In addition, countries that had followed the Soviet economic model, including India, China, Russia and the nations of Eastern Europe, Latin America and Central Asia, began to open up their economies to the world. This in Friedman’s view made countries more integrated and “similar”
Dicken, P. (2007). Global Shift: Mapping the Changing Contours of the World Economy, 5th. Edition. SAGE Publications
The four decades prior to World War One (WWI) and the three decades after World War Two (WWII) can be characterized as periods of great globalization and economic integration. As different parts of the world grew more interconnected, and the prosperity of one nation became tethered to the prosperity of another, many world actors searched for the right recipe of economic and political policies to help them weather the turbulent global market. In the first era, we see a focus on three pillars as the foundation for the world economic order. This included the gold standard, free trade, and the growth of international finance. In the second era, which proceeded WWII, similar policies were enacted as the world tried to learn from the mistakes made
4) Maintain a multilateral system of payments that eliminates foreign exchange restrictions. Countries are thus free to trade with each other without worrying about the effects of interest rates and currency depreciation on their
Hard peg – a guarantee of a fixed exchange rate –weakens incentives for governments to make fiscal system more robust, because the hard peg makes it easier for governments to borrow foreign funds, thus allowing them to delay necessary reforms to fix fiscal imbalances. On the other hand exchange rate peg promotes openness to trade and economic integration. An exchange rate fixed to the U.S. dollar will likely promote trade with the United States and other countries tied to the U.S. dollar.
After the turbulent years of the 1990s and early 2000s characterized by recurrent financial crises in emerging economies, financial instability and sluggish and erratic growth in Japan and the dot.com boom-bust cycle in the United States, the world economy
Dicken, Peter (2011). Global shift: mapping the changing contours of the world economy. 6th ed. Thousand Oaks, Calif.: Sage.
Arguments against flexible exchange rates include the arguments that they cause uncertainty, they inhibit international trade and that they allow destabilizing speculation. Arguments against fixed rates include that they cause uncertainty, they inhibit international trade and they allow destabilizing speculation. Contrast the situation in one country with a fixed exchange rate with one country that has a floating rate and explain the impact of the fixed and floating rates.
1. Discuss the causes of the Great Recession of 2008-10. Does the crisis represent a shift in the centre of global economic power from the United States to China? In your answer discuss the future fate of the US dollar as the preeminent international means of payments and reserve asset.
LITERATURE REVIEW. Berg examines the cost and benefits of dollarization compared to its closest alternative, a currency board. This relates to the thesis by explaining the benefits of dollarization that explain why dollarization is occurring. Quispe-Agnoli explains the costs and
There are many currencies in the world that get traded across the world every day. According to Countries-of-the-World.com (2015) there are roughly around 167 official national currencies, even though there are 197 independent countries in the world plus about 5 dozen dependent territories. The fact of the matter is that many of them don’t have their own currencies or actually use any foreign currency. This is why the European euro is used in 34 independent states, as well as in overseas territories. Furthermore, the U.S dollar is used by 10 different foreign countries and is the most traded currency in the world. With about 47% share of global payments and 87% of the forex market’s daily turnover going to the United States of America. Then the Euro comes in at second place with about 33% of the forex and 28% of international bank shares going to trades.
A conventional pegged currency is one in which a country decided to have an exchange rate that is set and not able to fluctuate freely with the market forces. They set their currency by pegging their exchange rate to another countries currency or a basket of currencies, where a basket is made up of the countries major trading partners and weighted by geographical distribution of trade, services or capital flows. In the past countries have also pegged their currency to another measure of value such as the price of gold. A pegged currency does not have to maintain absolute parity and the exchange rate is generally allowed to fluctuate within a 1% range, or the max and min values for the exchange rate stay within a 2% range over a 3-month period.
A fixed exchange rate regime will offer an economy greater stability in international prices and therefore encourage trade. Additionally, for developing countries a fixed rate will assist in promoting institutional discipline as the country will adopt restrictive monetary and fiscal policies that foster an anti-inflationary environment. A significant weakness of a fixed rate is that it is subject to destabilizing speculative attacks which could lead to financial meltdowns and devastating economic contractions. A floating exchange rate regime allows central banks to combat macroeconomic factors such as unemployment, inflation, and interest rates without having to worry about the effect on exchange rates. However, developing countries whose economies depend on trade will be reluctant to allow their exchange rates to fluctuate freely.
Now let us understand the correlation & interplay between foreign currency & the various economic parameters. In a floating regime of exchange rates, the interest rates in the country are adjusted so as to vary its real exchange rates & also as a measure to control inflation. Therefore a developing capitalist country will have its Central Bank adopt the policy of keeping its interest rate as low as possible. This will enable the entrepreneurs & the various economic actors to obtain capital at a cheaper rate. It will also help to maintain a low real exchange rate & hence boost domestic exports. Growing exports will see a positive trade balance or a Current Account Surplus. With a current account surplus the country can make strategic investments in the foreign markets or acquire factories. This will result in a negative Capital Account while indicating the presence in foreign markets. Such a cycle when sustained can provide a drive to the economy & increase the country’s GDP & improve the standard of living in it.