BBA 2264 INTERNATIONAL BUSINESS

THE INTERNATIONAL
MONETARY AND
FINANCIAL
ENVIRONMENT
Presented by Group 4
CURRENCIES AND
EXCHANGE RATES
Currency serves as a means of exchanging
commodities and services.
Exchange rate: Price of one currency in terms of
another.
CURRENCIES AND EXCHANGE
RATES
Constantly fluctuating exchange rates
require international managers to keep in
mind three facts
Firm’s currency
Fluctuations in the
exchange rate
Date of each transaction
THE FOUR
RISKS OF
INTERNATIONAL
BUSINESS
Commercial risk
Cross culture risk
Country risk
Currency (financial) risk
 Exchange Rates Over Time
Ringgit/Foreign Currency

Foreign exchange
Foreign exchange market

FOREIGN
EXCHANGE Example: Euro vs. the Dollar

MARKETS
Suppose, last year, the exchange rate was 1 = $1.
Now, suppose the rate has gone to: 1.50 = $1.
What is the effect of this change on Europeans?
HOW
EXCHANGE
RATES ARE
DETERMINED?
In a free market, the “price” of any currency (the exchange
rate) is determined by supply and demand:
The greater the supply of a currency, the lower its price.
The lower the supply of a currency, the higher its price.
The greater the demand for a currency, the higher its price.
The lower the demand for a currency, the lower its price.
 Government action

Balance of payments

Market psychology
FACTORS THAT
INFLUENCE THE Inflation
SUPPLY AND
DEMAND FOR A Economic growth
CURRENCY
 Value of the Currency and Trade
Surplus vs. Trade Deficit

import import export export

export Import

Trade surplus Balance of trade Trade deficit

DEVELOPMENT
OF THE
MODERN
EXCHANGE
RATE SYSTEM
Bretton Wood Conference
Bretton Woods established a fixed
exchange rate system to stabilize the Bretton Woods Agreement
world economy and trading system after International Monetary Fund (IMF)
the Great Depression and World War II. World Bank
THE
EXCHANGE
RATE SYSTEM
TODAY
While developing and emerging countries use
fixed exchange rate systems, the currencies
of advanced economies float in response to
market forces.
 The International Monetary
and Financial Systems

INTERNATIONAL GLOBAL
MONETARY FINANCIAL
SYSTEM SYSTEM
The institutional framework, rules, and The collection of financial institutions that
procedures by which national currencies are facilitate and regulate the flows of
exchanged for one another. investment and capital funds worldwide.
Globalization of Financial and
Monetary Activities
Growing integration of financial and monetary global activity is due to:

Evolution of monetary and Increased global and regional

financial regulations, interdependence of financial
worldwide. markets.

Emergence of new Growing role of single-

technologies and payment currency systems, e.g., the
systems in global finance, Euro.
e.g., the Internet.
Key Participants The Firm.

and National Stock Exchanges and

Relationships in Bond Markets.

the Global Commercial Banks

Monetary and
Financial Central Banks

Systems Bank for International

Settlements
GLOBAL
FINANCIAL
CRISIS
The 2008 global financial crisis highlighted the importance of strong
regulation, transparency, and supervision of institutions in the global
financial system.
Gross Government Debt as a Percentage of GDP