Chapter 11 SummaryThe gold standard is a monetary standard that pegs currencies to gold and guarantees convertibility to gold. The exchange rate between currencies was based on the gold par value - the amount of a currency needed to purchase one ounce of goldHow does the international monetary system influence exchange rates?Facilitate trade, a system was developed so that payment could be made in paper currency that could then be converted to gold at a fixed rate of exchangeThe gold standard broke down in 1939 as countries engaged in competitive devaluations.The Bretton Woods system of fixed exchange rate was established 1944. Goal was to build an enduring economic order that would facilitate postwar economic growth -The Bretton Woods Agreement established two multinational institutionsThe international Monetary Fund (IMF) to maintain order in the international monetary system○The World Bank to promote generate economic development○-The role of the IMF was to maintain order in the international monetary system:To avoid repetition of the competitive devaluations of the 1930s (Discipline)1.To control price inflation by imposing monetary discipline on countries. (flexibility)2.The World Bank Group include 5 institutions:International Bank for Reconstruction and DevelopmentThe international Development Association (IDA)I.The international Finance corporation (IFC)II.The multilateral Investment Guarantee Agency (MIGA)III.International Centre for Settlement of Investment Disputes (ICSID)IV.The world Bank lends money in two ways:Under the IBRD scheme•Under the International Development Association scheme•What caused the collapse of the Bretton Woods System?The collapse of the Bretton Woods system can be traced to U,S macroeconomics policy decisions (1965 to 1968)-The Bretton Woods system relied on an economically well managed U.S so, when the U.S began to print money, run high trade deficits, and experience high inflation, the system was strained to the breaking point.-Chapter 7 SummaryStudy guide MNGT 375 midtermWednesday, November 2, 20221:41 PM INTR BUSINESS Page 1Chapter 7 Summary7 Main instruments of Trade PolicyTariffs1.Subsidies2.Import quotas3.Voluntary export restraints4.Local content requirements5.Antidumping policies6.Administrative policies7.Tariffs - A tax levied on imports that effectively raises the cost of imported products relative to domestic products.Tariffs are pro-producers and anti-consumer, and reduce the overall efficiency of the world economy-Specific tariffs are levied as a fixed charge for each unit of a good imported-Ad valorem tariffs are levied as a proportion of the value of the imported goods-Subsidy - A government payment to a domestic producerSubsidies help domestic producersCompete against low-cost foreign imports○Gain export markets○-Consumers typically absorb the costs of subsidies-Import quotas - a direct restriction on the quanttity of some good that may be imported into a countryVoluntary export restraints - quotas on trade imposed by the exporting country, typically at the request of the importing country's governmentWho Benefits from import quotas and voluntary export restraints?imported quotas and voluntary export restraints benefits domestic producers by limiting import competition.➢But they raise the prices of imported goods for consumers ➢Administrative trade policies - Bureaucratic rules that are designed to make it difficult for imports to enter a countryThese policies hurt consumers by denying access to possibly superior foreign products-Dumping - Selling goods in a foreign market below their cost of production or selling goods in a foreign market at below their "fair" market valueAntidumping policies - designed to punish foreign firms that engage in dumpingThe goal is to protect domestic producers from "Unfair" foreign competition-U.S forms that believe a foreign firm is dumping can file a complaint with the government ---> if the complaint has countervailing duties may be imposed-There are two types of arguments for government intervention in international trade:Political arguments --> are concerned with protecting the interests of certain groups, often at the expense of other groups, or with promoting goals with regard to foreign policyProtecting jobs-Protecting industries deemed important for national security- INTR BUSINESS Page 2Protecting industries deemed important for national security-Protecting consumers from "dangerous" products-Economic arguments --> are about boosting the overall wealth of a nationThe infant industry argument - suggest that an industry should be protected until it can develop and be viable and competitive internationally -Strategic trade policy - Suggest that with subsidies, government can help domestic firms gain first-mover advantages in global industries where economic of scales are important.-The GATT was a product of the postwar free trade movement. The GATT was successful in lowering trade barriers on manufactured goods and commodities. -The move toward greater free trade under the GATT appeared to stimulate economic growth-Chapter 8: Foreign Direct InvestmentWhat is FDI?Foreign direct investment (FDI) - occurs when a firm invests directly in new facilities to produce and/or market in a foeign countryTwo Forms of FDIA greenfield investment - the establishment of a wholly new operation in a foreign country-Acquisition or merger with an existing firm in the foreign country-There are two factors relevant to FDI:The flow of FDI - the amount of FDI undertaken over a given time period1.The stock of FDI - The total accumulated value of foreign - owned assets at a given time2.Forms of FDIMost cross-border investment involves mergers and acquisitions rather than greenfield investments-Acquisitions are attractive because:They are quicker to execute than greenfield investments○It is easier and less risky for a firm to acquire desired assets than build them from the ground up ○Firms believe they can increase the effciency of an acquired unit by transferring capital, technology or management skills○-Why do forms prefer FDI to either exporting (producing goods at home and then shipping them to the receiving country for sale) or licensing?Limitations of Exporting - an exporting strategy can be limited by transportation costs and trade barriers1.Limitations of Licensing - Has three drawbacksIt may results in a firms giving away valuable technological know-how to potential foreign