International Bussiness an Asian Perspective Chapter 9-11

4. Suppose Mexican inflation is projected at 3% instead of 7% per year (assume French

16. If the nominal interest rate on an account is 1% and the inflation rate is 2%, the real interest rate is:

Because countries on gold standard had a common backing of currency, it was easy to exchange currencies without worrying about expensive transaction costs. The common currency backing was convenient for traders, but it also limited governments ability to raise inflation rates. Niall Ferguson writes in the Ascent of Money, “the long run stability of prices acted as an anchor for inflation expectations” (Ferguson 59). Because governments could control prices based on the amount of gold stored in inventory, the risk of inflation was low because the amount of gold stored was stable. This means prices do not fluctuate as much on a gold standard compared to fiat money. This stability is why there may still be sound reasoning for implementing a gold-backed

7. How do the International Monetary Fund, World Bank and the World Trade Organization deal with environmental issues in developing countries?

The first discussion about returning to a Gold Standard is about the necessity of gold. Gold itself is a fairly scarce mineral throughout the world in the first place. The mount of gold that can be purchased by a country is even less. How does this effect a Gold Standard? To those who argue that a Gold Standard is needed, being able to keep a constant level of gold creates more stability for the U.S. dollar. Kimberly Amadeo, an author of “The Balance,” writes,

Due to capital limitations, most governments, particularly in the developing nations borrow funds from their bilateral friends and organizations such as World Bank and International Monetary Fund (IMF) in earnest to enable them pursue development projects, and sometimes to correct balance-of-payment deficits. Nevertheless, such governments must adhere to some outlined conditions that are spelt out in the article of agreement in order for them to secure the loans; otherwise, the loans are withheld (White, 2012). Equally, a healthy population significantly contributes to economic development of

PROBLEM IV: (10 points) The Australian dollar spot exchange rate is $0.90/AUD. If the semi-annual interest rates in Australia and the U.S. are 5% and 3%, respectively, what should the $/AUD exchange rate be in six months? ___________________________

One of the characteristics of gold standard defined by Temin is that the adjustment mechanism for a trade deficit country was deflation rather than devaluation, that is, a change in domestic prices instead of a change in the exchange rate. In the event of a balance-of-payment deficit, countries on the gold standard could not devalue their currencies or expand the money supply to stimulate domestic demand, because by doing so would push up good prices, encourage more gold exports, and weaken the currency. Instead, they could only tighten monetary conditions with the goal of reducing domestic prices and costs until international balance was restored. “Critical to this process was the effort to reduce wages, the largest element in costs.” That is to say, the gold standard system must be maintained at the expense of the welfare of ordinary people, which they must either experienced wages fall or unemployment. This mechanism worked well to facilitate trade and exchange before the First World War, the reason,

Additionally, when developing countries utilize U.S. aid to galvanize their financial stability, it results in a larger global export market for U.S. goods and services (Marshall,

Our current free capital flow policy allows for a low-interest rate environment, high emerging-market growth prospects, commodity booms, and financial reform all of which could not be accomplished under the gold standard (Rummel, 2010). Even though the gold standard was traditionally valued for providing a single common currency around the world, it eventually collapsed when countries became unwilling to go through the adjustment process. The gold standard would not work due to the need to hold large gold reserves in order to keep up with the volatile nature of supply and demand for currency and the gold standard does not match the supply of money with the need for liquidity (Investopedia, 2008). Not to mention that a sudden influx of gold would cause inflation to rise and a sudden loss of gold would create deflation, forcing prices and wages to fall resulting in a recession. Most importantly if we have learned anything from history, it is that the Bretton Woods experience demonstrated that when supply and demand pressures get too great, a fixed exchange rate system has a tendency to buckle (Case Studies,

The Bretton Woods Conference set out six goals for the IMF in its Articles of Agreement. Those goals, as shown:

1. To qualify as a multinational corporation, a firm must meet all of the following criteria except:

International business contains all business transactions private and governmental, sales, investments, logistics, and transportation that happen between two or more regions, nations and countries beyond their political limits. Generally, private companies undertake such transactions for profit governments undertake them for profit and for political reasons. It refers to all those business activities which involve cross border transactions of goods, services, resources between two or more nations. Transaction of economic resources includes capital, skills, and people. for international production of physical goods and services such as finance, banking, insurance, and construction.

Harvard Business School’s Case Study “Aid, Debt Relief, and Trade: An agenda for fighting World Poverty” outlines the steps, and missteps, that the world community has taken since World War II to address the efficacy of international assistance. The study focuses on international financial institutions (IFIs) and their ability to help poor nations break out of poverty and the possible obligations of rich, developed countries to assist the heavily indebted poor countries (HIPCs). Additionally, the study seeks to see if this assistance has been and can be parlayed into growth and investment for the HIPCs.

1. The gold standard and the money supply. Under the gold standard all national governments promised to follow the “rules of the game”. This meant defending a fixed exchange rate. What did this promise imply about a country’s money supply? A country’s money supply was limited to the amount of gold held by its central bank or treasury. For example, if a country had 1,000,000 ounces of gold and its fixed rate of exchange was 100 local currency units per ounce of gold, that country could have 100,000,000 local currency units outstanding. Any change in its holdings of