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chapter eleven
Financial Forces
McGrawHill/Irwin
International Business, 11/e Copyright © 2008 The McGrawHill Companies, Inc. All rights reserved.
Learning Objectives
Explain how money can be made and lost in the foreign exchange (FX) markets
Understand foreign exchange quotations, including cross rates
Describe currency exchange controls
Explain how financial forces such as tariffs, taxes, inflation and the balance of payments can affect international management
11-3
Fluctuating Currency Values
• Freely floating currencies fluctuate against each other
• Fluctuations may be quite large
• Financial managers must understand how to protect against losses or optimize gains
11-4
Foreign Exchange Terminology
Foreign Exchange Quotation
The price of one currency expressed in terms of another Reported in the world’s currency exchange markets
Central reserve asset
Asset, usually currency, held by a government’s central bank Vehicle currency
A currency used as a vehicle for international trade or investment Intervention currency
A currency used by a country to intervene in the foreign currency exchange markets, often to buy (strengthen) its own currency
11-5
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