unit five money systems. unit 6 vocabulary account receivable bill of exchange bond capital project...
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Unit FiveMoney Systems
Unit 6 Vocabulary
Account ReceivableBill of ExchangeBondCapital ProjectCommercial InvoiceCredit TermsCurrency FutureElectronic Funds Transfer
(EFT)Exchange ControlsExchange RateForeign ExchangeForeign Exchange Market
Floating Exchange RateHard Currency Interest Rate International Money Fund
(IMF) Insurance CertificateLetter of CreditMoneyPromissory NoteSoft CurrencyTrade CreditWorld Bank
Unit 6 Essential Question
How is money used and exchanged in international business?
Amplifying Questions
What is the role of What is the role of money and currency money and currency systems in international systems in international business?business?
What factors affect the What factors affect the value of currency?value of currency?
Essential Question 1Money Systems
What is a money system and why is it used?
International Business pg. 174-179
Money and Currency Systems
What is money?AcceptabilityScarcityDurabilityDivisibilityPortability
VS.
Money and Currency Systems
Why is money used?Medium of exchangeMeasure of valueStore of value
Gold Standard
Shift from “farm” standard to “gold” standard occurred around 1200 AD.
Gold Standard: An agreed value of gold per ounce.
Gold Standard - History
On December 22, 1717, Sir Issac Newton, master of the mint, established the price of gold at 3 pounds, 17 shillings, 10.5 pence per ounce.
Due to the financial burdens of World War I many countries were forced to pay their debts in gold. Rather than diminishing their gold reserves, the countries dropped the gold standard.
Gold Standard - History
Bretton Woods ConferenceHeld in 1945 in Bretton Woods, New
Hampshire.Established the International Monetary Fund
(IMF).Established the gold exchange standard - one
ounce of gold would be worth US$35.
Gold Standard - History
From 1958 to 1971 the U.S. fiscal policy ran up a deficit balance of payment to the point where each US$ in circulation was backed by only $0.22 of gold.
In August, 1971 Britain requested the U.S. pay its debt, US$8 Billion, in gold.
To prevent U.S. bankruptcy, President Nixon ordered the U.S. off the gold exchange standard.
Foreign Exchange
Balance of payments - Flow of moneyEconomic conditions
Money supply and demandRiskInflation
Political Stability
Amplifying Questions
How do you calculate How do you calculate exchange rates?exchange rates?
How is foreign currency How is foreign currency manipulation controlled?manipulation controlled?
What are the functions What are the functions of the World Bank and of the World Bank and the International the International Monetary Fund?Monetary Fund?
Essential Question 2Money Systems
How is currency exchanged?
International Business pg. 181-185
Foreign Exchange Activities
Changing exchange ratesSoft CurrencyHard CurrencyFloating Exchange Rate
http://www.econedlink.org/lessons/index.cfm?lesson=EM342
Cash, Traveler’s Check, or Credit Card?
Foreign Exchange Activities
Exchange Rate CalculationsStep 1: Setup a ratio.Step 2: Solve for the missing variable.Examples:
How many British Pounds will fifty-five US dollars buy when US$1.56419 buys GB£1.00?
How many Japanese Yen will twenty British Pounds buy when GB£0.639309 and J¥120.230 buys US$1.00?
Foreign Exchange Activities
The foreign exchange market http://www.xe.com/ict/table.cgi http://www.bloomberg.com/invest/calculators/currency.html
Foreign exchange controls
International Financial Agencies
The World Bank International Bank for Reconstruction and
Development (IBRD)Sub-organization of the UNProvides economic assistance to less developed
nations through the: International Development Association (IDA) – Provides low
interest long term (50 years) loans to developing countries. International Finance Corporation (IFC) – Provides capital and
technical assistance to private businesses in nations with limited resources.
International Financial Agencies
The International Monetary Fund (IMF)Sub-organization of the UNPromotes economic cooperation and maintains an
orderly system of world trade and exchange rates by: Analyzing economic situations – monitors a country’s trade,
borrowing and government spending. Suggesting economic policies to encourage global trade. Providing low interest loans to countries with high foreign debt
to avoid escalating trade deficits and currency devaluation.
Amplifying Questions
What are the types of What are the types of payments used for payments used for international business international business transactions?transactions?
How are letters of credit How are letters of credit used in international used in international transactions?transactions?
Essential Question 3Money Systems
How is currency transactions handled between countries?
International Business pg. 187-192
International Financial Transactions
Foreign trade payment methodsCash in advance – Pay before goods receivedLetter of credit – Document issued by a bankSale on account - Credit
Sources of international financingShort-term financing – Less than a yearLong-term financing – Greater than a year
Other Payment Methods and Financial Documents
Promissory noteBill of exchangeElectronic funds transfer (EFT)Commercial invoiceInsurance certificate