Professional Documents
Culture Documents
Chapter 3
Chapter Overview
1. Historical Role of the U.S. Dollar 2. Development of Todays International Monetary System 3. Fixed Versus Floating Exchange Rates 4. Foreign Exchange and Foreign Exchange Rates 5. Balance of Payments 6. Economic and Financial Turmoil Around the World 7. Marketing in Euro-Land
Chapter 3 Copyright (c) 2007 John Wiley & Sons, Inc. 2
Introduction
Foreign exchange is the monetary mechanism allowing the transfer of funds from one nation to another. The existing international monetary system always affects companies as well as individuals whenever they buy or sell products and services traded across national borders. Although international marketers have to operate in a currently existing international monetary system for international transactions and settlements, they should understand how the scope and nature of the system has changed and how it has worked over time.
Chapter 3 Copyright (c) 2007 John Wiley & Sons, Inc. 3
Introduction
The 1990s particularly, the second half of the decade proved to be one of the most turbulent periods in recent history. The adoption of the euro as a common currency in the European Union in 1999 is just one example of the many changes taking place in todays business world.
Chapter 3
Chapter 3
Chapter 3
13
Many countries attempt to maintain a lower value for their currency in order to encourage exports.
Copyright (c) 2007 John Wiley & Sons, Inc. 14
Chapter 3
Chapter 3
15
Chapter 3
16
Chapter 3
17
5. Balance of Payments
The balance of payment (BOP) of a nation summarizes all the transactions that take place between its residents and and the residents of other countries over a specified time period, usually a month, quarter, or year. The BOP transactions contain three categories (see Exhibit 3-5): Current account Capital account Official reserves
Chapter 3 Copyright (c) 2007 John Wiley & Sons, Inc. 18
5. Balance of Payments
Chapter 3
19
5. Balance of Payments
The BOP in capital account, the mirror image of the BOP in the current account, summarizes financial transactions and is divided into short -and long-term capital accounts. Direct investments are controlled by residents of other nations. Portfolio investment includes long-term investments that do not give the investors effective control over the investment.
Chapter 3 Copyright (c) 2007 John Wiley & Sons, Inc. 20
5. Balance of Payments
There are three balances to identify on the BOP statement of a country: Balance of merchandise trade account The current account (including merchandise trade, trade in services, and unilateral transfers) The basic balance (the current account and the longterm capital) The internal market adjustment refers to movement of prices and income in a country. The external market adjustment concerns exchange rates or a nations currency and its value with respect to the currencies of other nations.
Chapter 3
21
Chapter 3
24
Chapter 3
25
Chapter 3
26
7. Marketing in Euro-Land
Today the European Union (EU) consists of 25 countries. Of those 25, the ten central and eastern European countries are less developed than the previous 15 countries (see Exhibit 3-8). The Euro zone economies represent a combined 33 percent of the worlds gross domestic product and 20% of overall international trade. The Maastricht Treaty which was signed on February 7, 1992 spelled out the guidelines toward European Monetary Union (EMU). The European Central Bank is headquartered in Frankfurt, Germany.
Chapter 3 Copyright (c) 2007 John Wiley & Sons, Inc. 27
7. Marketing in Euro-Land
On January 1, 2002, the euro notes and coins began to replace the German mark, the Dutch guilder and other European currencies. Ramifications of the euro for Marketers:
Price transparency Intensified competitive pressure Streamlined supply chains New opportunities for small and medium-sized companies Adaptation of internal Organizational structures EU regulations crossing national boundaries
Chapter 3 Copyright (c) 2007 John Wiley & Sons, Inc. 28
7. Marketing in Euro-Land
Chapter 3
29