New User Special Price Expires in

Let's log you in.

Sign in with Facebook


Don't have a StudySoup account? Create one here!


Create a StudySoup account

Be part of our community, it's free to join!

Sign up with Facebook


Create your account
By creating an account you agree to StudySoup's terms and conditions and privacy policy

Already have a StudySoup account? Login here

Global Business Strategy

by: Stephanie Scott

Global Business Strategy BUS 311 10

Marketplace > Washington College > Business > BUS 311 10 > Global Business Strategy
Stephanie Scott
Washington College
GPA 3.92

Preview These Notes for FREE

Get a free preview of these Notes, just enter your email below.

Unlock Preview
Unlock Preview

Preview these materials now for free

Why put in your email? Get access to more of this material and other relevant free materials for your school

View Preview

About this Document

Notes covering the class lecture on the International Monetary System and the Bretton Woods Institutions
Global Business Strategy
Dr. Drischler
Class Notes
Bretton Woods, IMF, World Bank, The Balance of Payments, fiscal policy, monetary policy, commercial, Policy, current, account
25 ?




Popular in Global Business Strategy

Popular in Business

This 5 page Class Notes was uploaded by Stephanie Scott on Thursday September 29, 2016. The Class Notes belongs to BUS 311 10 at Washington College taught by Dr. Drischler in Fall 2016. Since its upload, it has received 6 views. For similar materials see Global Business Strategy in Business at Washington College.

Similar to BUS 311 10 at Washington College


Reviews for Global Business Strategy


Report this Material


What is Karma?


Karma is the currency of StudySoup.

You can buy or earn more Karma at anytime and redeem it for class notes, study guides, flashcards, and more!

Date Created: 09/29/16
Class Notes 9/29/2016 International Monetary System Questions: 1. What is the International Monetary System? 2. Why is it important? 3. How does it differ from the international financial system? 4. What are the two principle components of Balance of Payments? 5. What are three policy instruments for righting imbalances in Balance of Payments? 6. What are two basic types of exchange rate regimes? 7. What was Bretton Woods? 8. Why is Bretton Woods still Important? The International Monetary System: International monetary system= a set of relationships that determine how international payments are made and how international debts are settled - It is important because: o Trade, investment, and finance depend on the cost and availability of money and credit o The monetary system is the ground rules for capital markets and the international financial system o Actual transactions occur in the financial system Moral Hazard - Negative by-product - Investors are protected from the downside risks of bad investment decisions (get bailed out) - This encourages them to continue to make overly-risky business decisions since they will win either way - Bernanke says: o People spend less effort protecting their things if they have insurance, and investors act in the same way. If they know they will get bailed out regardless of mistakes, they will continue to make the same mistakes - This puts governments in a difficult bind since they want to promote investments in other countries and aspiring businesses, but they also don’t want investors to ignore risk altogether Balance of Payments - Link between domestic economy and the world - 1000s of different kinds of international payments made everyday o goods and services, imports and exports o payment for assets like security and real estate o transfer payments o official transactions Key Components: - Current Account o Imports and exports (trade balance) - Capital Account o Purchases and sales of international assets, net international borrowing Current Account Current account= net goods and services in factor incomes and transfers Trade balance= value of goods exported minus the value of goods imported Service trade= accounting, law, engineering, and tech advice bought and sold as commodities - Investment income (received/paid out in wages and/or repatriated) Remittance= large part of smaller economies, people move to a more prosperous nation (the U.S.) and send money home to their families in poorer countries Example: second largest Haitian population is in L.A., work there and send money home Capital Account - Purchase and sale of assets, international borrowing and lending - Capital inflowsforeigners buying U.S. assets - Capital outflowsU.S. buying assets overseas - Official outflowscentral bank activity o Example: China buying US treasury bonds US Current Account - Large US current account deficit in past, however was decreasing until recently - Result of the growing strength of the US dollar relative to other currencies o Beneficial for capital account but not in current account o Means more imports and lower exports as foreign goods are relatively ‘cheaper’ and US goods are relatively more ‘expensive’ ¨Nightmare Scenario” - If the US dollar tanks then the US Fed would be forced to hike interest rates, resulting in lower economic activity - Issue with the US dollar tanking is that it would cause a crash worldwide o When crashes occur investors retreat to “haven currencies” (called “flight to quality”) which has almost always been the US $... o So what would replace the US $ if it became unstable? Adjustments - Balance of payments is actually always ‘balanced’ since it’s a statistic o Stat discrepancy and change in resource yields the accounting balance o Balance of Power defined by Current – Capital with reserve change and statistical discrepancy calculated in - 3 policy adjustments available for dealing with BoP deficit 1. Monetary Policy= inducing economic contractions and limiting public access to funds o increase interest, increase reserve requirement for commercial banks o make bonds more expensive o can also devalue currency (unless you’re Greece) 2. Fiscal Policy= reduces government spending and increase taxes in order to withdraw purchasing power from the economy trade policy: direct effect on imports and exports, tariffs, NTB’s, subsidies etc. o governments prefer tariffs because it makes foreigners pay the cost of reducing spending, but this can cause foreign governments to retaliate Systemic Requirements - Gilpin provides description of effective international monetary system o Leadership: country must manage reserve currency and provide liquidity, lender of last resort o Adjustment: restore equilibrium in deficit or surplus o Liquidity: provide buffer financial reserves to meet crisis situations o Confidence: trust in the US dollar Bretton Woods - In 1944, meeting in New Hampshire, dominated by the US and UK (one goal was to address the currency devaluation war that was occurring) - Recognized the importance of domestic policy such as full employment and inflation on the systemic economy o Previously governments weren’t always held responsible for economic shifts - Bretton Woods Institutions: o The IMF provides adjustment advice and short term BoP loans o World Bank assists in reconstruction and development o National controls on capital flows to control speculative capital flows (a response to the struggle of dealing with massive cash transfers as countries were trying to repay WW1 debts) - Also created a gold-exchange standard with fixed exchange rates based on a ratio of gold to the US dollar - Post WW2 planners wanted to counter the collapsed world economy that occurred in the 1920’s and 30’s o Fighting fragmentation, currency devaluation, regional economic blocs, regional conflict between great powers - Premise: economic and political collapse after WW1 led to WW2 o World Bank, IMF, and then later WTO were all the brain children of this theory o People wanted to fix a previous inadequate system - Gold exchange standard based on US Dollar o Fundamental part of international system till gold closed in 70’s o Dollar still central to global economy o The British sterling, yen, and euro are good back-ups, Chinese Renminbi won’t be until China allows it to be a more floating currency and opens its markets more o System of USD base can only work as long as confidence in the USD remains  China fixes its currency against a basket of 7 other currencies very precisely every day, once it relaxes control it may eventually replace the US as a haven currency - Capital Flows o Original Bretton Woods system promoted free trade o But not capital mobility o In the 20’s and 30’s global financial linkages caused crises in countries to spread and envelope multiple countries o Bretton Woods’ capital controls made it harder for investment funds to move from country to country seeking higher returns  Current problems, the US dollar is hot and liquid  IMF policy changes have almost come full circle End of Bretton Woods - By the 70’s, recovery of Europe and Japan made Bretton Woods obsolete - US financing Vietnam War and Great Society (social welfare package) by paying tons of US$, increased amount of dollars in circulation o Result was other countries questioned the pegged dollar value to gold - Nixon in ‘71 o Ended the Gold Standard o Imposed import surcharge, effectively revaluing European and Japanese currencies o Smithsonian Agreement devalued US$ but took it off the gold standard Recap 1. How payments get made and debts gets settled 2. Important because the monetary system is the groundwork of the financial system where actual transactions occur 3. Framework is monetary, transactions are financial, determined by the international monetary system 4. Current (trade balance of imports and exports) and capital (purchase and sales of international assets) 5. fiscal (taxes and spending), commercial (trade instruments like tariffs), and monetary policy (government tools) 6. either fixed or floating (small countries are usually fixed, larger are usually floating) 7. during/post WW2 response to economy, agreement to rebuild Europe (IMF and World Bank) development and reconstruction, created institutions that shaped today’s system and still in operation today. Made the United states the central currency and cemented it at the heart of the international economy 8. IMF and World Bank continue, they created a system pegged to the dollar


Buy Material

Are you sure you want to buy this material for

25 Karma

Buy Material

BOOM! Enjoy Your Free Notes!

We've added these Notes to your profile, click here to view them now.


You're already Subscribed!

Looks like you've already subscribed to StudySoup, you won't need to purchase another subscription to get this material. To access this material simply click 'View Full Document'

Why people love StudySoup

Bentley McCaw University of Florida

"I was shooting for a perfect 4.0 GPA this semester. Having StudySoup as a study aid was critical to helping me achieve my goal...and I nailed it!"

Kyle Maynard Purdue

"When you're taking detailed notes and trying to help everyone else out in the class, it really helps you learn and understand the I made $280 on my first study guide!"

Jim McGreen Ohio University

"Knowing I can count on the Elite Notetaker in my class allows me to focus on what the professor is saying instead of just scribbling notes the whole time and falling behind."


"Their 'Elite Notetakers' are making over $1,200/month in sales by creating high quality content that helps their classmates in a time of need."

Become an Elite Notetaker and start selling your notes online!

Refund Policy


All subscriptions to StudySoup are paid in full at the time of subscribing. To change your credit card information or to cancel your subscription, go to "Edit Settings". All credit card information will be available there. If you should decide to cancel your subscription, it will continue to be valid until the next payment period, as all payments for the current period were made in advance. For special circumstances, please email


StudySoup has more than 1 million course-specific study resources to help students study smarter. If you’re having trouble finding what you’re looking for, our customer support team can help you find what you need! Feel free to contact them here:

Recurring Subscriptions: If you have canceled your recurring subscription on the day of renewal and have not downloaded any documents, you may request a refund by submitting an email to

Satisfaction Guarantee: If you’re not satisfied with your subscription, you can contact us for further help. Contact must be made within 3 business days of your subscription purchase and your refund request will be subject for review.

Please Note: Refunds can never be provided more than 30 days after the initial purchase date regardless of your activity on the site.