International Corporate Finance Xin Chen Associate Professor Antai College of Economics and Management
1 International Corporate Finance Xin Chen Associate Professor Antai College of Economics and Management
Chapter 3 The international monetary system 2
2 Chapter 3 The international monetary system
China.Takes Aim at Dollar BEIJING -China called for the creation of a new currency to eventually replace the dollar as the world's standard,proposing a sweeping overhaul of global finance that reflects developing nations' growing unhappiness with the U.S.role in the world economy. The unusual proposal,made by central bank governor Zhou Xiaochuan in an essay released Monday in Beijing,is part of China's increasingly assertive approach to shaping the global response to the financial crisis. http://online.wsj.com/article/SB123780272456212885.html
China Takes Aim at Dollar BEIJING -- China called for the creation of a new currency to eventually replace the dollar as the world's standard, proposing a sweeping overhaul of global finance that reflects developing nations' growing unhappiness with the U.S. role in the world economy. The unusual proposal, made by central bank governor Zhou Xiaochuan in an essay released Monday in Beijing, is part of China's increasingly assertive approach to shaping the global response to the financial crisis. http://online.wsj.com/article/SB123780272456212885.html
Special Drawing Rights (SDRs) The SDR is an international reserve asset, created by the IMF in 1969 to supplement its member countries'official reserves.Its value is based on a basket of four key international currencies,and SDRs can be exchanged for freely usable currencies.With a general SDR allocation taking effect on August 28 and a special allocation on September 9,2009,the amount of SDRs will increase from SDR 21.4 billion to SDR 204.1 billion (currently equivalent to about $317 billion)
Special Drawing Rights (SDRs) The SDR is an international reserve asset, created by the IMF in 1969 to supplement its member countries’ official reserves. Its value is based on a basket of four key international currencies, and SDRs can be exchanged for freely usable currencies. With a general SDR allocation taking effect on August 28 and a special allocation on September 9, 2009, the amount of SDRs will increase from SDR 21.4 billion to SDR 204.1 billion (currently equivalent to about $317 billion)
Currency terminology A foreign currency exchange rate,or exchange rate,is the price of one country's currency in units of another currency For instance,an exchange rate of 5 Danish kroner to the US dollar implies that for 5 Danish kroner one can get 1 US dollar 5
5 Currency terminology A foreign currency exchange rate, or exchange rate, is the price of one country’s currency in units of another currency For instance, an exchange rate of 5 Danish kroner to the US dollar implies that for 5 Danish kroner one can get 1 US dollar
Exchange rate between USD and DKK 9.00 8.50 8.0 7.50 .00 6.50 6.0 5.50 5.00 4.5▣ 1899 20002001200220032004200520062007T 2008 2009 6
6 Exchange rate between USD and DKK 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 4.50 5.00 5.50 6.00 6.50 7.00 7.50 8.00 8.50 9.00
Exchange rate between EUR and DKK 7.50 7.40 19992000200120022003200420052006200720082009 7
7 Exchange rate between EUR and DKK 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 7.40 7.50
Currency regimes Overall,there are two kinds of currency regimes 器Fxed Floating A fxed exchange rate means that the country maintains a fixed exchange rate in terms of a foreign currency A foating or flexible exchange rate means that the exchange rate is entirely market determined 8
8 Currency regimes Overall, there are two kinds of currency regimes Fixed Floating A fixed exchange rate means that the country maintains a fixed exchange rate in terms of a foreign currency A floating or flexible exchange rate means that the exchange rate is entirely market determined
Currency regimes In practice,there is a gradual change from fixed to floating.IMF uses eight different classifications of exchange rate regimes.For instance,Denmark has pegged exchange rates within horizontal bands Countries such as Ecuador and Panama have exchange arrangements with no separate legal tender (dollarization) Countries such as the US,the UK,Japan,and Sweden have independently floating currencies 9
9 Currency regimes In practice, there is a gradual change from fixed to floating. IMF uses eight different classifications of exchange rate regimes. For instance, Denmark has pegged exchange rates within horizontal bands Countries such as Ecuador and Panama have exchange arrangements with no separate legal tender (dollarization) Countries such as the US, the UK, Japan, and Sweden have independently floating currencies
Fixed versus flexible exchange rates Fixed rates provide stability in international prices for the conduct of trade 传 Fixed exchange rates require the country to follow restrictive economic policies Fixed rates may be maintained at rates that are inconsistent with economic fundamentals 10
10 Fixed versus flexible exchange rates Fixed rates provide stability in international prices for the conduct of trade Fixed exchange rates require the country to follow restrictive economic policies Fixed rates may be maintained at rates that are inconsistent with economic fundamentals
