Business Quiz Chapter 8 Essay

D) Spain exported more finished goods than it imported due to the high quality of its artisans and craftsmen.

Exporting, licensing, and using trading companies are preferred modes of international market entry for firms with a(n) ____ structure.

3. Leather for products was delivered from Brazil to Mexico, where it was easier to process it due to lower environmental restrictions

The new Bretton Woods system was backed by nearly all the Allies, save for the Soviet Union, and seemed to be heralding a new era of global cooperation in the economy. Reality, however, did not match with that expectation. The insistence on using a gold standard brought forth bullionism reminiscent of the

How did this historical evolution unfold? In the late 1960’s, capital movements began to undermine the Bretton Woods preoccupation with capital controls, as US officials began actively encouraging the growth of the Euromarket— the pool of unregulated dollar reserves concentrated in the City of London. Speculative capital flows, however, began to undermine the capacity for the US to guarantee the convertibility of dollars into gold at fixed parity (Triffin, 1960). In 1974, Nixon closed the gold window and loosened capital controls. The deregulation of financial markets established a global market of mobile financial capital, yet Keynesian inspired institutional arrangements remained intact, especially the maintenance of cheap money policy for

                B)    the currency's value is set at a rate lower than its value in the free market.

However, many theorists argue that despite this interwar hesitancy, the post-war reconstruction enabled the reformation of the Western European economic systems under free-market terms. For example, consider the impact of the Bretton Woods conference, which provided a framework for the facilitation of economic growth and trade through tying currencies to gold, and the establishment of the IMF to bridge any imbalances of payment. These are examples of new international institutions that created a greater integration of global economies never previously seen.

The Soviet Union, though not a part of Bretton Woods - needed to maintain dollar reserves for trading purposes and having politically tense relations with the U.S. it had to chose a destination apart from the U.S. for the same. There also existed a fear of the U.S. preventing the use of the dollar reserves it held. The Soviet Union’s Moscow Narodny Bank in London and the Banque Commerciale pour L’Europe du Nord in Paris chose to hold U.S. Dollar balances in London or Paris rather than in New York. “As a hedge against inflation and to make a bit of profit, the Soviet banks began lending Dollars out at interest to other users. The Eurodollar market had grown from $1 Billion in 1957 to more than $100 Billion by 1972.”

The third market is the foreign exchange market or balance of payments. This is where the availability of foreign currency is balanced against the demand for it (Pugel, 2012, p. 564). The term foreign exchange market is used when referring to the exchange rate and the term balance of payment is used when referring to the country’s settlements balance.

Example: Importer needs to buy Yen in six months. He/she can buy Yen forward today at the 6 month forward rate, and lock in a guaranteed ex-rate now for when the contract is due in 6 months. Locking in an ex-rate locks in a cost of the imported product in US dollars. If they

21. A ________ transaction in the foreign exchange market requires an almost immediate delivery (typically within two days) of foreign exchange.

The price of a currency that will be delivered in the future is called (THE FORWARD EXCHANGE RATE)

In the world of Forex, swapping currencies is the name of the game. Foreign Exchange trading, also known as Forex or currency trading, refers to the world's largest financial market upon which one currency is traded with another for profits. The top ten most traded currencies in the Forex market include USD, Euro, Japanese Yen, British Pound, Canadian Dollar, Swiss Franc, Australian Dollar, Swedish Krona, Hong Kong, Dollar and Norwegian Krona. The prices of these currencies fluctuate on the basis of its supply and demand. Other factors such as interest rates and the country's financial and political state can also affect the worth of the currency. The participants of the Forex market are very diverse ranging from multinational corporations

▪ Information on the transaction is exchanged and traded almost as if it was the product itself.

Effectively, what happens is when countries want to import goods, they either have to directly barter those for their own exports, or first buy currency from the exporting country with which to purchase the exports. Exporting countries often want payment in their own currency, so if the purchasing country has a reserve of the foreign