Final PPT International Fiance
Final PPT International Fiance
= ´onvertibility
ë ´onvertible currency
A currency that may be freely exchanged for foreign
currencies.
Example: che U.S. and ´anadian dollars became convertible
in 1945. A ´anadian resident who acquired U.S. dollars could
use them to make purchases in the U.S. or could sell them to
the Bank of ´anada.
ë che MF articles called for convertibility on current
account transactions only.
c Rol f c World Bank
che World Bank is also called the nternational Bank for
Reconstruction and Development (BRD)
chere are two ways to borrow from the World Bank:
1. under the BRD scheme, money is raised through bond sales
in the international capital market
= borrowers pay what the bank calls a market rate of interest -
the bank's cost of funds plus a margin for expenses.
2. through the nternational Development Agency, an arm of
the bank created in 1960
= DA loans go only to the poorest countries
c Collaps f c Fixd
^xc ang Rat Syst
=Bretton Woods worked well until the late 1960s.
=t collapsed when huge increases in welfare
programs and the Vietnam War were financed by
increasing the money supply and causing significant
inflation
=ther countries increased the value of their
currencies relative to the dollar in response to
speculation the dollar would be devalued
Collaps
= However, because the system relied on an
economically well managed U.S., when the U.S.
began to print money, run high trade deficits, and
experience high inflation, the system was strained
to the breaking point