Types of Transactions Current Account T he current-account balance is very important because it summarizes the real transactions that occur in a country. The current-account balance includes merchandise trade; other goods, services, and income; and unrequited transfers. The merchandise trade balance is critical because of the sheer volume of transactions that takes place. The...
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BUSINESS IMPLICATIONS OF EXCHANGE-RATE CHANGES Market Decisions On the marketing side, exchange rates can affect demand for a company’s products at home and abroad. A country such as Mexico may force down the value of its currency if its exports become too expensive owing to relatively high inflation. Even though inflation would cause the...
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Summary of The Determination of Exchange Rates ■ The International Monetary Fund (IMF) was organized in 1944 to promote exchange stability, maintain orderly exchange arrangements, avoid competitive currency devaluation, establish a multilateral system of payments, eliminate exchange restrictions, and create standby reserves. The Special Drawing Right (SDR) was instituted by the IMF to increase...
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Case: Caterpillar and the Fluctuating Dollar Caterpillar, one of the world’s largest heavy-equipment manufacturers, has been beset by two major problems: competition from Komatsu Ltd. of Japan and a fluctuating U.S. dollar. The 30 percent strengthening of the dollar against the yen in 1989 and early 1990, as noted in Fig. 8.2, made Japanese...
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