Mktg.26 Mr. Poblete

1. MKTG 26 : International Marketing
Chapter 3 : International Monetary System
PASIG CATHOLIC COLLEGE

2. Objective of the chapter 3
Describe the development of today’s international
monetary system
Explain how foreign exchange transaction are conducted
Identify the problems associated with exchange rate
fluctuations
Discuss the balance of payments perspective of the
United States
Explain the creation of Eurodollars and its monetary
effect.

3. The Development of Today’s
International Monetary System
 A number of countries were wrestling political freedom
from colonial rulers.
 It did take long for these countries to realize that
political freedom alone was not sufficient.
 Economic prosperity was not only necessary for
existence but mandatory for long-term survival and
growth.
 Countries realized that planned international
cooperation fostered economic development and
prosperity.

4. The Bretton Woods Conference
After world war II nations agreed to a
framework on international rules – a code of
behavior – to maintain monetary discipline
and to ensure that dissenting nations did not
frustrate economic development efforts
through counteractions.

5. The Bretton Woods Conference
Negotiation at Bretton Woods made certain
recommendation in 1944.
Each nation should be at liberty to use
macroeconomic policies for full employment
Free-floating exchange rates could not work. Their
ineffectiveness had been demonstrated during 1920s
and 1930s. The extremes of both permanently fixed
and free-floating rates should be avoided.
A monetary system was needed that would recognize
that exchange rates were both a national and an
international concern.

6. The International Monetary Fund
The International Monetary Fund (IMF)
was established at Bretton woods, New
Hampshire to oversee the newly agreed
upon monetary system with original
members of 55 and now are over 150
members.

7. The International Monetary Fund
There are several major accomplishment to the credit of
the international Monetary System.
Sustained a rapidly increasing volume of trade and
investment.
Displayed flexibility in adapting to changes in international
commerce.
Proved to be efficient( even when there decreasing % of
reserve to trade)
Proved to be hardly( its survived a number of pre- 1971
crises, speculative and otherwise, and the down-and-up
swings of several business cycles)
Allowed a growing degree of international cooperation.
Established a capacity to accommodate reforms and
improvements.

8. The IMF and Debt Crisis
The debt crisis has a profound impact on the
economic performance of developing countries. One
of the most urgent tasks facing the international
community is to find ways of reducing the drag
exerted by the continuing debt overhang on
economic growth in the developing world.

9. The IMF and Debt Crisis
A framework to reduce the burden of debt must
have two elements.
First, the debtors need to grow faster and export
move.
Second, the cost of debt services must fall.
Note: With the right policies in both industrial and
developing countries, these elements can go hand in
hand.

10. Fixed Versus Floating Rates
Exchange rate stability of any lasting duration cannot be
imposed externally by adoption of the pegged exchange rates
and heavy official intervention in the foreign exchange market.
When the floating exchange rates were introduced, it was said
that balance-of-payments adjustments would be facilitated, but
not only have imbalances not disappeared, they have become
worse.
It was thought that speculation would be curtailed. On the
contrary, never has it assumed such proportions nor had such
destabilizing effects.

11. Fixed Versus Floating Rates
It was believed that market forces, left at last to their
own devices, would determine the correct exchange
rate balance. But never have imbalance been so great,
nor fluctuation so wide and erratic and so little justified
by economic fundamentals.
It was hoped that autonomy in economic and monetary
policy would be preserved, allowing each country free
choice of its monetary policy and rate of inflation. Facts
have completely belied this illusion.

12. Foreign Exchange
Foreign exchange is the monetary
mechanism by which transaction involving
two or more currencies take place.
Foreign exchange refers to the exchange of
one country’s money for another country’s
money.

13. Balance of Payments
The balance of payments of a country summarizes all the
transactions that have taken place between its residents and
foreigners in a given period, usually a year.
The world transactions refers to export and imports of
goods and services, lending and borrowing of funds,
remittances, and government aid and military expenditures.
The terms residents includes all individuals and business
enterprises, including financial institution, that are
permanently residing within the country’s borders, as well as
government agencies at all levels. ( can be included to Part
I )

14. Balance of Payments
In other words, balance of payments reflects the
totality of a country’s economic relations with the
rest of the world: its trade in goods, its exchange of
services, its purchase and sale of financial assets, and
such important government transactions as foreign
aid, military expenditures abroad, and the payment of
reparation.

15. END OF CHAPTER 3
FOR INTERNATIONAL MARKETING