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Questions and Answers
What is one of the properties of gold that makes it suitable for exchange?
What was the effect of the competitive devaluations on international trade?
What was the purpose of the Bretton Woods Agreement in 1944?
What is the term for a government's policy of imposing tariffs and quotas to control the amount of goods coming in and out of the country?
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What is the term for a tax on goods and services across international borders?
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What is the term for the amount of goods and services moving across international borders that is restricted?
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What is a multinational corporation?
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What has enabled finance and commerce to be internationalised?
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What is the primary benefit of operating in a global market?
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How was the exchange rate calculated under the gold standard?
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What is the result of the growth of multinational corporations?
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What is the current state of the world economy?
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Study Notes
Gold Standard
- Introduced in the UK in 1821, a monetary system where the standard unit of currency is fixed against the amount of gold
- Example: UK in 1821, £4.24 per ounce of gold, and USA in 1834, $20.67 per ounce of gold
- Allows for the calculation of exchange rates between countries
- Exchange rate calculation: amount of USA dollars divided by amount of UK pounds
Properties of Gold
- Durable: lasts long
- Easily stored and portable
- Easily recognizable
- Can be divided into small units and standardized
- Stable short-term supply
Gold Standard Benefits
- Provides great control over a country's currency
- Limits the amount of currency in circulation
- Avoids inflation by preventing the printing of excess money
Gold Standard Failure
- Broke down during World War I
- Reinstated in 1925-1931 but affected by competitive devaluations
- Competitive devaluations led to trade wars between countries
Competitive Devaluation
- Countries cheapening their currency to boost exports
- Example: devaluing currency so 5 units of currency equal 1 ounce of gold
- Allows countries to export goods easily, but makes importing goods difficult
- Leads to trade wars and protectionist policies
Bretton Woods Agreement (1944)
- Post-war agreement among countries to have fixed/pegged exchange rates for currencies
- All countries fixed their currency's gold price, creating exchange rates against other countries
- Exchange rates could fluctuate within +/- 1% of the agreed value
- Governments maintained fixed exchange rates through intervention in foreign markets
International Monetary System
- Supported by three institutions: International Monetary Fund, International Bank for Reconstruction and Development (World Bank), and Bank for International Settlements
Globalisation
- Advances in transportation, IT, and communication have enabled commerce to become more internationalised
- Economies around the world have been integrated into a single global economy
- Companies now have international contact, leading to both opportunities and risks
- Multinational corporations operate in more than one jurisdiction, selling goods and services across international borders
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Description
Test your understanding of the financial aspects of international business, including the impact of advances in transportation and IT on globalization and international trade. Prepare for your lecture with this quiz on the key concepts and principles of global economy integration.
