Introduction to Global Business, Chapter 4 PDF

Introduction to Global Business Chapter 4 The International Flow of Fu...

Introduction to Global Business Chapter 4 The International Flow of Funds and Exchange Rates © 2017 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitt 4–1 ed in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.  After studying this chapter, you should be able to: 1. Explain the balance of payments for a country. 2. Describe the foreign exchange market and its components. 3. Key items that impact exchange rates 4. Trends in foreign exchange markets – cryptocurrency, digital currency EXAM #1 – Majority of Questions from PowerPoint material © 2017 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitt 4–2 ed in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.  Chapter 4 Overview Growth of Trade Types of Trade Key Trade Areas Trade Policy Barriers to Trade Ch 1 -3 Ch 4 1. Measuring Success: Balance of Trade Exports – Imports Measured in Currency FDI 2. Conducting Trade: Payment Foreign Exchange Ch 4 © 2017 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitt 4–3 ed in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.  Balance of Payments (BOP) Measuring Trade Why Measure Trade? Importance of Measurement Overall health of economic trade for a region/country Determine trends –up or down Use for business decision-making © 2017 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitt 4–4 ed in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.  Balance of Payments (BOP) de” Current Account $’s moving into country a “Tr shown as a credit + Trade Services Income Net balance balance balance transfers $’s moving out of country Financial Account DI” shown as a debit - “F U.S. assets Foreign assets Net financial abroad in the U.S. derivatives © 2017 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitt 4–5 ed in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.  Terms Balance of payments (BOP) = Current + Financial Account – Shows all transactions between one country and the rest of the world for a given period of time – Transaction that causes money to flow into a country is a credit to its BOP account, and any transaction that causes money to flow out is a debit. Current account (~Goods & Services traded) – Shows the activities of consumers and businesses in the economy with respect to the trade balance, services balance, income balance, and net transfers Financial/capital account (~FDI) – Consists of domestic-country-owned assets abroad, foreign-owned assets in the domestic country, and net financial derivatives Statistical discrepancy – Reconciles imbalances between the current account and financial account to ensure that debit and credit entries in the BOP statement sum to zero © 2017 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitt 4–6 ed in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.  BOP Example de” Tr a “ FDI” “ © 2017 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitt 4–7 ed in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Example BOP Current Account US 4–8  Current Account Balance - Egypt Source:https://data.worldbank.org/indicator/BN.CAB.XOKA.CD?locations=EG 4–9  “+” Current Account Balance “-” Current Account Balance © 2017 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitt 2–10 ed in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.  Concerned with Current Account Deficits? U.S. Trade Balance Source: MacroTrends 1970 2022 Deficit must be “manageable” & financed with sustained capital UK & US have persistent current account deficits for long periods w/out any adverse impact Deficits financed by capital flows mean the country is attracting Foreign Direct Investment (FDI) – which is increasing domestic productive capacity. © 2017 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitt 4–11 ed in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.  U.S> Trade Deficit Source:By Efbrazil - Own work, CC BY-SA 4.0, https://commons.wikimedia.org/w/index.php?curid=118098336 © 2017 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitt 4–12 ed in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. © 2017 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitt 4–13 ed in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.  Current Account Deficit as % GDP U.S. Deficit is “Manageable” Deficit is only 2 -4% of total GDP Historically in line © 2017 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitt 4–14 ed in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.  US In Line With Other Countries (2024 Data) © 2017 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as 4–15 permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.  FDI in the U.S. – offset to Current Account Trade Deficit US is largest recipient of FDI US govt policies on tax & regulation offer freedom for foreign investment © 2017 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitt 4–16 ed in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.  Foreign Ownership of US Stock is Growing Last ~50 years Grown from 5% to 40% Source: Who Owns US Stock? Foreigners and Rich Americans. | Tax Policy Center © 2017 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitt 4–17 ed in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.  What does all this mean? U.S. trade deficit is manageable – Overall disparity with China is problematic Trade deficit offset by robust FDI – U.S. is a good place for foreign investment FDI and U.S. equities Significant trade and FDI reflect healthy & growing economy When evaluating countries must look at both trade and investment © 2017 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitt 4–18 ed in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.  2. Transacting Global Business Foreign Currency Exchange If you were in Turkey and you wanted to buy something with your U.S. dollars, how would you do it? © 2017 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitt 4–19 ed in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.  Foreign Exchange Summary Trade is transacted in various types of currency Need ability to “trade” currency – exchanges occur in pairs – U.S. company buy goods in Euros – Exchange U.S. dollars for Euros Increasing volume of international trade transactions – Large market for trading currencies Use FOREX (Foreign Exchange) Market to facilitate – Open market – 24 hours a day – exchanges in NYC, London, Tokyo Most currency values fluctuate – macro economics, interest rates, inflation, political situation If transactions occur over long period of time – Need to protect from currency fluctuations – business risk © 2017 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitt 4–20 ed in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.  Fundamentals of FOREX © 2017 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitt 4–21 ed in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.  USD, EURO, Yen = +60% Source: November 17, 2020 The Top 5 Most Traded Currencies in the World www.fxssi.com © 2017 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitt 4–22 ed in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.  Most Business Transactions use US Dollar, Euro, or Japanese yen Global business transactions use U.S. dollar, Euro, or Japanese yen These serve as “standards” because they are relatively stable (low volatility) Many countries keep these currencies in “reserve” so they can effectively trade around the world – According to IMF (COFER) USD accounts for ~60% of global foreign exchange reserves Euro is ~20% Chinese yuan - ~3% © 2017 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitt 4–23 ed in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.  USD Relatively Stable Currency © 2017 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitt 4–24 ed in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.  Volatility of Russian Ruble © 2017 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitt 4–25 ed in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.  USD Large Role in Global Trade/Finance USD used in predominance of business transactions (trade finance) - +80% USD foreign govt reserves - % is slowing dropping © 2017 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitt 4–26 ed in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Current Trend – Countries want to move away from the USD A natural way to diversify': Janet Yellen now says Americans should expect a decline in the USD as the world's reserve currency — what’s really going on and how can you prepare? B. Moorcraft June 23, 2023 Moneywise The U.S. dollar saw an 8% decline in its share of global reserves in 2022 — causing some to question whether the dollar’s days of dominance are While over. U.S. sanctions and foreign policy plays have inspired a backlash from China, Russia and other prominent countries — who are keen to dethrone the dollar — Yellen remains adamant that “it will not be easy for any country to devise a way to get around the dollar.” The end of King Dollar? The forces at play in de-dollarisation By Naomi Rovnick and Libby George May 25, 2023 Reuters LONDON, May 25 (Reuters) - Rivalry with China, fallout from Russia's war in Ukraine and wrangling once again in Washington over the U.S. debt ceiling have put the dollar's status as the world's dominant currency under fresh scrutiny. Russia's sanctions-imposed exile from global financial systems last year also fuelled speculation that non-U.S. allies would diversify away from dollars. © 2017 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 4–27  How much currency is traded each day? ~$8Trillion per day e ang exch ncy re s cur uire req e trad Intl in w th o Gr Source:https://www.compareforexbrokers.com/trading/statistics/ © 2017 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitt 4–28 ed in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.  FOREX Basic Facts $8T Forex largest financial market in the world FX is a decentralized Market NY, London, Tokyo Majority of transactions not directly associated with business trade Most transactions are speculative (arbitrage) to make money © 2017 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitt Source: What is Forex? - BabyPips.com 4–29 ed in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.  Exchange rates fluctuate over time – creating Business risk If you are a business do you want large fluctuations in exchange rate? © 2017 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitt 4–30 ed in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Countries with High Exchange Rate Volatility General Have Strained Economies Business Less Likely to Invest or conduct trade © 2017 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitt 4–31 ed in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.  Currency Fluctuations – Significant Economic Impacts Nigeria's naira recorded a historical plunge after being floated freely The currency float is meant to help close the gap between official and black market exchange rates ByFaustine Ngila Published June 15, 2023 Quartz The decision by the Central Bank of Nigeria (CBN) to float the naira freely has come with an unwanted outcome: a historical fall of the value of the currency against the US dollar. Intended to curb dollar scarcity and curtail parallel forex exchange markets, the move has sent the naira down by 36% on the official market on June 14. The new policy removed trading restrictions on the official market, forcing the naira to go from 477 per US dollar on June 13 to 750 on June 14. As of June 15, the black market rate stood at 760 per US dollar. © 2017 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitt 4–32 ed in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. KARACHI, Pakistan, Aug 22 (Reuters) - Pakistan's rupee closed at a record low of 299 rupees against the dollar in the interbank market on Tuesday following an easing in import restrictions that has lifted demand for the dollar, central bank data showed. Pakistan imposed import restrictions from 2022 to stem outflows from its shrinking foreign reserves. The removal of those restrictions beginning in June was a condition of a $3 billion International Monetary Fund loan programme to help the crisis-ridden economy. © 2017 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitt 4–33 ed in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.  Inflation/Exchange Impact on a Country Argentina Example 'Country of beggars': Argentines reel as 104% inflation keeps rising May 12, 2023 Reuters Argentines, grappling with one of the highest inflation rates in the world at 104% - and rising - are increasingly having to skimp and save as salaries fall behind prices, stoking anger and frustration at the country's center-left government. That has pushed one in four people into poverty in a country that in the early 1900s was among the wealthiest in the world, though it has battled for decades with high inflation, along with cyclical debt and currency crises. Dwindling central bank reserves are now imperiling the government's finances. Volatility in the foreign exchange market, which saw the peso hit record lows near 500 to the dollar in parallel markets last month, has inflamed prices further and strained Argentina's huge $44 billion loan deal with the International Monetary Fund. © 2017 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitt 4–34 ed in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.  Factors that impact exchange rates Exchange rate stability is key indicator for a country’s overall economic health Source:8 Key Factors that Affect Foreign Exchange Rates (compareremit.com) © 2017 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitt 4–35 ed in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Inflation Rates – Impact on Currency Bloomberg Special Report: Inside Venezue la, Maduro Interview - Bloomberg 7.7 million people fled country +20% of population One of largest in Western Hemisphere 4–36  What went wrong in Venezuela? Short answer – they ran out of money 1999 - 2013 oil exports were $768B ($55B/yr) ; currently around $20B per year Country did not save – it spent all revenue – oil money spent or stolen No diversity in economy – oil or bust Currency manipulation – black market – people making money on govt price/currency controls – “The honest businessperson over-invoices by 50% and the corrupt businessperson over-invoices by 100% Price controls on goods – people would buy out at low prices and re-sell on black market for huge mark-up – Yogi Berra economy – stuff was so cheap that nobody could afford to buy it! Govt kept spending even when oil revenue decreased No oversight in govt – Central Bank just kept printing money No judiciary – increased the number of judges on Supreme Court to get what they wanted No property rights Corruption is rampant Bad policies, bad leaders, no authority by people to change things – “In Venezuela there are many people and very few citizens” – People were too accepting – do not insist on change Tendency towards centralized govt – one central leader – Chavez and now Maduro Hope for Venezuela?  A lack of domestic accountability, combined with geopolitical priorities, have long allowed both Egypt and Pakistan to borrow heavily from China, the IMF, Saudi Arabia and the United Arab Emirates to fund disproportionately large defence budgets and controversial development programmes meant to boost the popularity of those in power, analysts say. Source: https://www.scmp.com/week-asia/economics/article/3208998/why-pakistan-and-egypt-are-too-big-fail-sri-lanka-style-economic-crisis © 2017 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitt 4–38 ed in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.  IMF Debt – Troubled Countries © 2017 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitt 4–39 ed in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.  Example of Public Debt & Currency Impact United States Federal spending > Federal revenue (taxes) Creates Budget Deficit Public Debt (bonds) Issued to fund Deficit Domestic and Foreign Investors buy US Issued debt Deficit & debt continues to grow Assess ability of USG to pay back debt Investors lose confidence – impact to currency © 2017 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitt 4–40 ed in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.  US National Debt (as of 2/3/25) U.S. National Debt Clock : Real Time (usdebtclock.org) © 2017 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 4–41 © 2017 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 4–42  How did we obtain so much debt? Budget Deficits funded by Public Debt © 2017 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitt 4–43 ed in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.  Debt Purchased by Foreign Investors Too much debt will impact Currency Rates Source: How Much Is the National Debt? What are the Different Measures Use d? (pgpf.org) 4–44  Which Countries Own U.S. Debt? © 2017 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitt 4–45 ed in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.  Different Approaches to Foreign Exchange Markets Setting Exchange Rates Special drawing right (SDR) – A basket of currencies (dollars, euros, pounds, and yen) created by the IMF for use as a benchmark to value the currencies of different countries Independent Managed floating Fixed exchange Clean float currency floating exchange exchange rate – Monetary system with minimal rate system rate system system government intervention; largely market determined Dirty float currency – Monetary system with varying degrees of government Most countries fall in this range intervention to maintain a range of acceptable values against other currencies Government policy is important consideration © 2017 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitt 4–46 ed in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. What does a strength/weakness of a currency mean to business? W ea ngthen ke Stre n Strong USD – make imports cheaper, exports more expensive, cheaper to travel Weak USD – make imports expensive, exports cheaper, expensive to travel © 2017 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitt 4–47 ed in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.  Components of the Foreign Exchange Market Forex Markets Spot market Forward market Futures market Business Transactions Trading Spot – immediate delivery Arbitrage Forward – delayed delivery from order Investor Related © 2017 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitt 4–48 ed in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.  Forex Trading Terms (continued) Forward rate – The price at an earlier time of a currency in terms of another currency established for future delivery in the forward market Discount – The selling of a currency at a spot rate that is less than the forward rate Premium – The selling of a currency at a spot rate that is more than the forward rate Hedge – Insurance that reduces future risk © 2017 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitt 4–49 ed in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.  Hedging is important business risk mitigation tool © 2017 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitt 4–50 ed in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.  Hedging – Lock-in Currency Risk Spot Price (immediate) T i m e / R i s k / C o s t Future Price – Locked in “Hedging” cost/fee – 2.96% Source: GBP/USD : British Pound - US Dollar Forward rates (fxempire.com) © 2017 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitt 4–51 ed in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.  Summary - Business Risks with Foreign Currency Business transactions in different currencies will include risk – Analyze level of risk – Take appropriate action – hedge, spot market buy, specify currency type in all transactions Be aware of macro level influences in foreign transactions – General economic stability of the country – Political stability – Interest rate stability – Possible Government intervention in currency rates © 2017 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitt 4–52 ed in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.  Trends in Foreign Currency Exchange Growth of FOREX will most likely continue – understand it Rise of Asian related currency trading Rise of digital currency – Backed by government India Announces Plans to Launch – Regulated Central Bank Digital Currency 2/1/22 – Digital vs paper/coins The digital rupee will be launched in the next fiscal year, which begins April 1 Bitcoin/cryptocurrency impact on foreign exchange – Not backed by govt. – Unregulated – Expensive to “mine” Electrical power required is large 4–53  Bitcoin/Cryptocurrency A cryptocurrency is a digital, encrypted, and decentralized medium of exchange. Cryptocurrency impact on foreign exchange – Currently ~1400+ cryptos (Bitcoin, Ethereum, LiteCoin, etc.) – Blockchain technology – Crypto – not backed by any government – possible criminal component – Completely at the will of the market – Forward/futures market not mature – volatility still high – Ease of transactions – universal currency is attractive – Eliminate FOREX/banks??? 4–54  Cryptocurrency Acceptance? Trevor Lawrence and all the other athletes getting paid in Bitcoin and cryptocurrency – April 2021 4–55  Crypto & Crime. Cryptocurrency fueled Hamas' war machine Bitcoin and Tether funnel millions of dollars to terror groups ByTim Fernholz PublishedOctober 10, 2023 Quartz Growth/Decline of Cryptocurrencies (Bitcoin example) 4–58  Russia Bitcoin “Mine” – Excess Use of Electricity Source: Inside Russia's Largest Bitcoin Mine - Bloomberg next to hydroelectric power plant Many “mines” using ed in Siberia – less energy to cool renewable sources of energy Digiconomist's estimated that one Bitcoin transaction takes 4 kWh to complete, or the equivalent 53 days of power for the average US hous 4–59  EIA said global electricity use in cryptocurrency mining accounts for 0.2% to 0.9% of global electricity demand. Grid planners have also begun to express concern over the rapid growth in electricity demand associated with cryptocurrency mining. Source:Crypto Miners Used As Much Electricity As All of Australia Last Year (businessinsider.com) © 2017 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitt 4–60 ed in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.  Largest Mine in NA – Rockdale, TX Source: Whinstone U.S. :: Riot Blockchain, Inc. (RIOT) © 2017 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 4–61  Summary When considering international business venture: – Understand balance of payments – reflects trade policies – Understand and consider implications of foreign currency transactions Financial Technology is rapidly changing (Fintech) © 2017 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitt 4–62 ed in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.  Key Terms balance of payments (BOP) exchange rate current account independent floating exchange trade balance rate system trade deficit managed floating exchange services balance rate system income balance fixed exchange rate system balance of transfers spot market financial account bid-ask spread risk premium direct quotes foreign direct investment (FDI) indirect quotes statistical discrepancy forward market foreign exchange markets forward rate © 2017 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitt 4–63 ed in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.  Key Terms (continued) discount dirty float currency premium dollarization hedge law of one price inflation arbitrage gold standard purchasing power parity Bretton Woods Agreement (PPP) International Monetary Fund Big Mac index (IMF) interest rate parity (IRP) clean float currency © 2017 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitt 4–64 ed in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.