BUSINESS & GLOBAL

ECONOMY– 7 & 8
Richie Santosdiaz
This class’s topic:

 International Financial Systems

& Business
 Overview on Key Terms
 Key Relationships
 History
 International Monetary Systems
& Implications
 Financial Crises
INTERNATIONAL FINANCIAL
SYSTEMS & BUSINESS
7
Exchange Rates & Currencies in
International Business – Overview

 Exchange rate is the price of one currency expressed in terms of

another.
 Currency risk arises from changes in exchange rates and affects
firms’ international business prospects.
 A convertible currency is one that can be readily exchanged for other
currencies. Some currencies are nonconvertible and not readily
exchangeable.
 Foreign exchange refers to all forms of money that are traded
internationally, including foreign currencies, bank deposits, checks,
and electronic transfers.
 Capital flight refers to the tendency of international investors to
reduce their investments drastically in a troubled currency or other
assets.
 Currencies are exchanged in the foreign exchange market —the
global marketplace for buying and selling currencies— mainly by
banks and governments.
Exchange Rates & Currencies in
International Business – Overview
 Currency values are determined by various factors, including
economic growth, inflation, market psychology , and government
action . As inflation rises, so do interest rates, usually
accompanied by a decrease in currency value.
 Trade deficit refers to the amount by which a nation’s imports
exceed its exports for a specific time period.
 Trade surplus is the amount by which a nation’s exports exceed
its imports for a specific time period.
 Monetary intervention is when government action is done to
influence exchange rates
 Devaluation is when a government acts to reduce the official
value of its currency relative to other currencies
 The balance of payments is the annual accounting of all
economic transactions of a nation with all other nations.
Emergence of the modern exchange
rate system – Bretton Woods Agreement
 AIM: Was to stabilise exchange rates worldwide
 Failed by 1971-3 due to market forces and currency values
began floating
 Today: currency values are determined in some countries by a
floating exchange rate system , according to market forces, and
in developing economies as well as those who became
developed nations (i.e. GCC countries) by a fixed exchange rate
system , controlled by government intervention.
 The International Monetary Fund (IMF) is a key international
agency that aims to stabilise currencies by monitoring the
foreign exchange systems of member countries and lending
money to developing economies.
 The World Bank provides loans and technical assistance to low
and middle-income countries with the goal of reducing poverty.
Bretton Woods – Pre, During and Post
Summary – all you need to remember!

Pre Bretton Bretton Woods Post-Bretton

(1944) – (1944-1971/3) Woods (1971/3
– - present) –
Gold standard –
countries guaranteed
44 countries replaced Floating exchange
they would redeem
gold with USD rate or fixed
currencies for value
exchange rate
in gold
(71-73 – think of it as
a separation by 73 it
was officially done)
Exchange Rates &
Currencies in
International Business
Source: XE (as of 25th June 2021)
Exchange Rates & Currencies in International Business
Role Reversal exercise! – India Example: General
function and times of crisis
 India - IMF
 UAE - Bank for Int’l Settlement
 Saudi Arabia – World Bank
 China – HDFC Bank and Central Bank of India
 Australia – National Stock Exchange of India
 Singapore – Tata
Debate: Tale of Two International Financial Centres
(IFC) in Asia:

Which one do you think is the supreme IFC?

Debate: Should Asia have a unified currency
like the Euro?
*assuming there is an integrated economic & political union
Debate: Do you think the USD will still be the
world’s most important currency in 20 years?
 In Focus: Bitcoin and
El Salvador

 First country in the world to

accept as legal tender
 Uses the USD as legal tender

https://thefintechtimes.com/bitcoin-announced-as-
legal-tender-in-el-salvador/
INTERNATIONAL MONETARY
SYSTEMS & IMPLICATIONS
7
 ECONOMIC CRISES:
1997, 2008 & COVID-19
8
CASE STUDY ONE:
1997 ASIAN
FINANCIAL CRISIS
1997 Asian Financial Crisis

https://www.youtube.com/watch?v=ClhA5pjHjT0
1997 Asian Financial Crisis

https://corporatefinanceinstitute.com/resources/knowledge/finance/asian-financial-crisis/
Case Study: Daewoo

https://www.mbaknol.com/management-case-studies/case-study-the-daewoo-g
roup-and-the-asian-financial-crisis/
1997 Asian Financial Crisis

https://www.youtube.com/watch?v=6uxH1J1QKMc
Effect of 1997: How were following countries
overall from an economic standpoint?
 India
 UAE
 Saudi Arabia
 China
 Australia
 Singapore
CASE STUDY TWO:
2008 GLOBAL
FINANCIAL CRISIS
The Causes and Effects of the 2008 Financial Crisis

https://www.youtube.com/watch?v=N9YLta5Tr2A
Overview – Financial Crisis of 2008

http://news.bbc.co.uk/1/hi/business/7521250.stm
Overview – Financial Crisis of 2008

http://news.bbc.co.uk/1/hi/business/7521250.stm
Overview – Financial Crisis of 2008

http://news.bbc.co.uk/1/hi/business/7521250.stm
Overview – Financial Crisis of 2008

http://news.bbc.co.uk/1/hi/business/7521250.stm
Overview – Financial Crisis of 2008

http://news.bbc.co.uk/1/hi/business/7521250.stm
Overview – Financial Crisis of 2008

http://news.bbc.co.uk/1/hi/business/7521250.stm
Overview – Financial Crisis of 2008

http://news.bbc.co.uk/1/hi/business/7521250.stm
Overview – Financial Crisis of 2008

http://news.bbc.co.uk/1/hi/business/7521250.stm
Overview – Financial Crisis of 2008

http://news.bbc.co.uk/1/hi/business/7521250.stm
Overview – Financial Crisis of 2008

http://news.bbc.co.uk/1/hi/business/7521250.stm
Casualties of the Financial Crisis

https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/362056/EU_OTS_Aug14.pdf
Case Study: Iceland

 http://www.washingtonpost.com/business/economy/iceland-makes-fledgling
-recovery-from-its-economic-meltdown/2012/01/12/gIQAW1q83P_story.html

 Pre growth and borrowing made financial industry so large for such a small
country (local and foreign accounts)
 3 largest banks were allowed to fail
 Lots of foreigners (esp Brits) had accounts in Iceland
 Inflation over 20 per cent; krona lost over half of value against Euro
 Debt to GDP grew over 100 percent by 2011
 Diversifying economy esp in tourism and exports in agriculture has helped its
economic recovery
Case Study: Spain

 Country experienced a long boom after joining Euro, underpinned by a housing bubble,
financed by cheap loans to builders and homebuyers.
 House prices rose 44% from 2004 to 2008
 Economy grew 3.7% per year on average from 1999 to 2007
 Although the Spanish government still had relatively low debts, it has had to borrow heavily
to deal with the effects of the property collapse, the recession and the worst unemployment
rate in the eurozone.
 Spent lavishly on new infrastructure and big projects like airports and swimming pools
 Before the credit crunch, the banks had been thriving thanks to the rapid expansion of the
property sector.
 But collapse caused a plunge in the value of the assets the loans were based on, and meant
borrowers had trouble making repayments.
Case Study: Spain

 Banks borrowed the money on the international markets to lend to developers

and homebuyers, a much riskier strategy than using the deposits they get
from savers.
 Many of its smaller, weaker banks have had to merge or have been rescued by
larger ones. The number of branches has been cut by 15%, and 11% of the jobs
in the industry have gone.
 Santander and BBVA, is well run and resilient.
 Bankia, Spain's fourth-largest bank, has been part-nationalised and billions of
euros of public money pumped into it
 High employment! - esp. 18-25 year olds (50%)

http://www.bbc.co.uk/news/business-17549970
UK - Effect on UK banks?

http://archive.learnhigher.ac.uk/resources/files/business%20comm%20awareness/The%20Financial%20Crisis%20and%20its%20Impact%20on%20the%20UK%20and%20other%20Economies.pdf
UK - Effect in the UK?

http://archive.learnhigher.ac.uk/resources/files/business%20comm%20awareness/The%20Financial%20Crisis%20and%20its%20Impact%20on%20the%20UK%20and%20other%20Economies.pdf
Debt in the EU

http://www.nytimes.com/interactive/2015/business/international/greece-debt-crisis-euro.html
Case Study: Greece

https://www.youtube.com/watch?v=g_yiQBe8yiQ
Greece

 Please research Greece and what happened which led to crisis

 What are the downslides of Greece being a part of the EU?

 What is the current situation of Greece?

Effect of the Financial Crisis: How were the
following countries overall?
 India
 UAE
 Saudi Arabia
 China
 Australia
 Singapore
 CASE STUDY
THREE: 2020
CORONAVIRUS
PANDEMIC
Effect of COVID: How are following countries
overall from an economic standpoint?
 India
 UAE
 Saudi Arabia
 China
 Australia
 Singapore
Thank you

Classes 7&8