1. Kirt C. Butler, Multinational Finance, South-Western College Publishing, 2e 2-1 Chapter 2 World Trade in Goods and Capital 2.1Integration of the World’s Markets 2.2Balance-of-Payments Statistics 2.3Exchange Rate Systems 2.4A History of the International Monetary System 2.5Summary Appendix 2-A The Theory of Comparative Advantage

2. Kirt C. Butler, Multinational Finance, South-Western College Publishing, 2e 2-2 Integration of the world’s markets F Completion of the Uruguay Round of the General Agreement on Tariffs and Trade (GATT) F Creation of the World Trade Organization (WTO) F Trend toward free market economies F Industrialization of the Far East and Pacific Rim F Rise of regional economic linkages and trade pacts F Fall of the Iron Curtain F Reunification of East and West Germany F Hong Kong’s 1997 return to China F Entry of China into international trade

3. Kirt C. Butler, Multinational Finance, South-Western College Publishing, 2e 2-3 U.S. merchandise trade

4. Kirt C. Butler, Multinational Finance, South-Western College Publishing, 2e 2-4 The U.S. balance of payments 19901995 Goods: Export f.o.b.389.31576.76 Goods: Import f.o.b.  498.34  749.77 Trade balance  109.03  173.01 Services: Credit147.70206.79 Services: Debit  117.63  143.93 Balance on Goods & Serv.  78.96  110.16 Income: Credit160.42181.47 Income: Debit  140.71  194.11 Balance on Goods, Serv. & Inc.  59.25  122.80 Current Transfers: Credit8.795.74 Current Transfers: Debit  42.45  35.93 Current Account  92.91  152.98 Source: IMF publication International Financial Statistics.

5. Kirt C. Butler, Multinational Finance, South-Western College Publishing, 2e 2-5 The U.S. balance of payments (continued) 19901995 Capital Account: Credit0.260.53 Capital Account: Debit   0.43 Capital Account0  0  Direct Investment Abroad  29.95  96.90 Dir. Inv. in Reporting Economy47.9274.70 Portfolio Investment: Assets  28.80  93.77 Portfolio Investment: Liabilities  4.20191.39 Other Investment Assets  13.73  79.69 Other Investment Liabilities43.1954.61 Financial Account14.4250.35 Net Errors and Omissions44.526.66 Overall Balance  33.71  95.88 Source: IMF publication International Financial Statistics.

6. Kirt C. Butler, Multinational Finance, South-Western College Publishing, 2e 2-6 Classifications of exchange rate systems F An economist’s classification system »Fixed rate systems »Floating rate systems F The IMF’s classification system »Pegged systems »Limited flexibility systems »More flexible systems

7. Kirt C. Butler, Multinational Finance, South-Western College Publishing, 2e 2-7 Major exchange rate agreements »1946 Bretton Woods Conference »1971 Smithsonian Agreement »1972 European Joint Float Agreement »1976 Jamaica Agreement »1979 European Monetary System (EMS) created »1985 Plaza Accord »1987Louvre Accord »1991Treaty of Maastricht

8. Kirt C. Butler, Multinational Finance, South-Western College Publishing, 2e 2-8 A history of the international monetary system F 1946 Bretton Woods Conference »The U.S. dollar is convertible into gold at $35/ounce »Other currencies pegged to the dollar »Created IMF and World Bank

9. Kirt C. Butler, Multinational Finance, South-Western College Publishing, 2e 2-9 History of the international monetary system F 1971 Exchange rate turmoil »dollar falls off the gold standard »most currencies begin to float on world markets F 1971Smithsonian Agreement (Group of Ten) »dollar devalued to $38/oz of gold »other currencies revalued against the dollar »4.5% band adopted F 1972 European Joint Float Agreement »“The snake” adopted by EEC

10. Kirt C. Butler, Multinational Finance, South-Western College Publishing, 2e 2-10 History of the international monetary system F 1976 Jamaica Agreement »Floating rates declared “acceptable” F 1979 European Monetary System (EMS) »European Exchange Rate Mechanism (ERM) established to maintain currencies within a 2.25% band around central rates »European currency unit (ECU) created

11. Kirt C. Butler, Multinational Finance, South-Western College Publishing, 2e 2-11 History of the international monetary system F 1985Plaza Accord (Group of Ten) »The Group of Ten form an agreement to cooperate in controlling volatility and bringing down the value of the dollar F 1987Louvre Accord »The Group of Five agree to maintain current levels

12. Kirt C. Butler, Multinational Finance, South-Western College Publishing, 2e 2-12 History of the international monetary system F 1991Treaty of Maastricht »European community members agree to pursue a broad agenda of economic, financial and monetary reforms »A single European currency is proposed as the ultimate goal of monetary union F 1999Introduction of the euro »Emu-zone currencies are pegged to the euro »European bonds convert to the euro F 2002The euro begins public circulation

13. Kirt C. Butler, Multinational Finance, South-Western College Publishing, 2e 2-13 Mexican peso crisis Mexican stock market value (in local currency) (Dec 31, 1993 = 1.00) Mexican peso (in U.S.dollars)

14. Kirt C. Butler, Multinational Finance, South-Western College Publishing, 2e 2-14 The Asian contagion (December 31, 1996 = 1.00) Thai bhat Korean won Indonesian rupiah