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47 Cards in this Set

  • Front
  • Back
What is the IMF?
-cooperative institution that seeks to maintain orderly system of payments
-receipts between nations; administers pool of money where members can borrow
-oversees members monetary and exchange rate policies and receives frequent reports on economic policies(credit union)
What are some key functions of the IMF?
- promote international monetary cooperation
- exchange stability, and orderly exchange arrangements
- foster economic growth
-hiher levels of employment
- provide temporary financial assistance to countries
-ease balance of payments adjustment
What is the diff between the IMF and the WB?
WB- is primarily a development instituion; borrows and lends
What are SRDs?
Special drawing rights
- like currency supplements
- relative size of country determines voting power and SDR allocations
Give two examples of IMF involvement in a country.
- russian fiancial crisis (demonstrating the failings of IMF)
1) inadequate risk assessment
2) overestimated growth
3) deal w/ indiv. who then disappeared from political scene

-READ about another example :ADD
What is the world Bank?
-comprised fo 5 institution
(mainly - International Bank of Reconstruction and Development (IBRD) and International Development Association (IDA))

- mainly a financial instutition: borrows and lends
What are 10 things you never knew about the world bank?
1) largest funder of education
2) largest external funder to fight AIDS
3) leader of fight against corruption
4) supporter of debt relief
5) largest international funders of biodeiversity projects
6) work in partership more than ever before???
7) helping to bring clean water, electricity, and transport to poor ppl
8) civil society plays a larger role in our work???
9) help countries merger from conflict
10) responding to the voices of poor people
What are some criticisms of the World bank?
Malaria situation
- not kept promise of spending 300-500 mil
-reduced experts from 7 to 0
- inveted bogus epidemiological statistics
-backed out of date treatment in india

on globalization:
- expansion of exports is disastrous for the environment
What does the world bank advocate?
urges developed nations to cute agriculture subsidies
- to help developing nations compete
- canada reluctant to do so because of shorter growing seasons
What is the WTO?
-established in 1995 to replace GATT
- world trade referee to settle disputes
-deals with trade rules b/w nations
goal to ensure trade flows as smoothly, freely, and predictably as possible
how are WTO disputes settled?
a panel of specially selected experts are formed
give an example of WTO dispute settlement?
Canadian santions against Brazil to improve competition of bombardier
What does OECD stand for?
Organization for Economic Cooperation and Development
what is OECD's purpose?
purpose: to gather information about the activities of various countries and regions so that senor goverments can make decisions

extra: collect data, monitor trends, forcast developments, research
What does ASEAN stand for?
Association of South East Asian Nations
What is ASEAN's goal?
1) accelerate economic growth, social progress and cultural developments in region

2) promote regional peace and stability in adherence with UN Charters
What else should we know about ASEAN?
-giant free-trade zone by 2020
China by 2010
India by 2011
Japan by 2012

-china seeking to trade with almost everybody in region

-historical shift in global economy w/ europe and US being powers in their own right
-east asia accounts for 20% of world exports
What does UNCTAD stand for?
the United Nations Conference of Trade and Development
What tasks do UNCTAD undertake?
-globalization and development strategies
- international trade in goods and services
investment, technology and enterprise development
-services infrastructure for development and trade efficiency
What does the UNCTAD annual world investment reports say?
-FDI shifting towards services
-slowdown of world economy affecting decline in FDI
-reduction of cross border mergers and acquisitions
What is the role of the central banks in the relation to the environments?
Political environment - laws and regulations

economic environment - banking is economic activitiy

technological environment - complext IT systems
what are ways that the central bank can intervene in the currency market?
1) coordinate its action with other banks
2) execute own actions
3) enter the market aggressively (buy and sell DC)
4) Call for reassuring action (public speech)
5) public relations activities (announcement)
6) operate through brokers
What is the foreign exchange market?
action through OTC
-exchange traded market - stock exchanges that trade futures and options
What are factors that influence exchange rates?
- relative inflation rates
- relative interest rates
- relative income levels
- government controls (foreign exchange barriers, repatriation restrictions, foreign trade barriers, central bank intervention -buying DC-, intervention may affect inflation, interest rates, income levels)
- expectations
- events
Name 7 exposures to foreign exchange risk.
-sales and inventory
-capital equipment
-supplies and services
-debt/lease costs
-payroll-payments to shareholders
-transfer payments
What are spot transactions?
the price of one currency in terms of another (direct and indirect quotes)
What is a direct quote?
American terms - equal to $1 US
What is an indirect quote?
european term - amount of USD
What are the advantages to using spot transactions?
exporters benefit from DC devaluation
importers benefit from DC appreciation
- no transaction cost
-simplplicity / easy to monitor
what are the disavantages to spot checks?
exporters are vulnerable to DC appreciation
-importers are vulnerable to DC depreciation
-monitoring is required to transact at favourable rate b/c so unpredictable
What are Forward Contracts?
amount of currency to be exchanged on a specific day
What are the advantages of forward contracts?
-protection from adverse currency moves
- no transaction costs
-simple to minotr and simple to unwind - sell to someone else via currency swap
what are the disadvantages to forward contracts?
- loss of opportunity gains from favourable currency moves
liability from both parties to transact
FX swap, what is it?
simultaneous spot and foward transaction
bid/ask spread , what is it?
represents the bank's fee for service in effecting the currency exchange between two parties (if DC popular, spread will be small, no worry about risk of buying currency)
what are cross rates?
number of DC/FC units received for each foreign currency unit
arbitrage, waht is it?
- capitalizing on discrepancy in quote prices
currncy swap?
a contract to exchange two currencies at one time in order to exchange back to each investors oringinal position at some future date, for a predetermined price
currency futures?
similar to foward but are traded in an exchange, traded through a broker(not a lender)
like a contingency plan, buys futures contract for currency you need, if you don't then broker sells
foreign currency options?
- gives holder right but not obligation to buy or sell an underlying asset at a predetermined price or until a certain time (as opposed to forward contract which is an obligation)
-holder has right, but not obligation to purchase at strike price
- holder has right, but not obligation to sell at strike price
what happens when the dollar is very high? (low 80s)
- difficulties for exporters
- cheapter for importers to import
- less expensive for cdns to travel overseas for business and pleasure
-pro: more leverage mor ebuying power south of border; makes cdns travel outside country
con: drive down US buying power - so export sector hurt which means slow production, hinder competitiveness, loss of jobs
What happens when the dollar is very low? (high 60s)
- goood for exporters
-bad for importers
- good for travel
-more attractive to foreign buyers and investors; demand increase production, boosting manufacting and jobs
con: more expensive imports, produce goods, less valye for tourism
what is robert mundell's view on foreign exchange?
- smaller countries with economic links to dollar and euro better off fixing
if canadian exchange rate is fixed, canadians would gain much more than americans and have more stable purchasing power
what is milton freidman's opinion on foreign exchange?
-fixed makes central bank control and alter domestic monetarh policy, but flexible can draw upon reserves of foreign currency
if fixed, inflation would math to that of US, trade relations would be strained, pressure for canadian to devalue or float