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HISTORY OF INTERNATIONAL TRADE

HISTORY OF INTERNATIONAL TRADE. CENTERS FOR TRADE DEVELOPED—BABYLON, CAIRO, ATHENS, ROME, LONDON, NEW YORK, TOKYO PRIOR TO WW I MOST COUNTRIES ON GOLD STANDARD FEDERAL RESERVE ACT OF 1913—MOVED AWAY FROM GOLD OR SILVER BACKING U.S. TRIED TO GO BACK ON GOLD STANDARD IN 1920’S, ABANDONED IN 1933.

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HISTORY OF INTERNATIONAL TRADE

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  1. HISTORY OF INTERNATIONAL TRADE • CENTERS FOR TRADE DEVELOPED—BABYLON, CAIRO, ATHENS, ROME, LONDON, NEW YORK, TOKYO • PRIOR TO WW I MOST COUNTRIES ON GOLD STANDARD • FEDERAL RESERVE ACT OF 1913—MOVED AWAY FROM GOLD OR SILVER BACKING • U.S. TRIED TO GO BACK ON GOLD STANDARD IN 1920’S, ABANDONED IN 1933

  2. INTERNATIONAL MONETARY FUND (IMF) • CREATED IN 1944 TO PROMOTE WORLD TRADE THROUGH MONITORING AND MAINTAINING FIXED EXCHANGE RATES AND MAKING LOANS TO COUNTRIES WITH TRADE IMBALANCES • 1945-1972—USED COMBINATION OF GOLD AND U.S. DOLLAR FOR FOREIGN EXCHANGE RESERVES • IN 1970, CREATED SDRs (SPECIAL DRAWING RIGHTS)—BASKET OF CURRENCIES FOR INTERNATIONAL PAYMENTS (16 CURRENCIES) • TODAY BASKET OF 4—U.S.(45%), EURO(29%), JAPAN(15%), BRITISH(11%)

  3. EXCHANGE RATES • 1973 – PRESENT—MOSTLY FLEXIBLE EXCHANGE RATES • INDIA, CHINA AND RUSSIA EMPLOY MANAGED FLOATING SYSTEM WITH ACTIVE GOV’T INVOLVEMENT • CURRENCY EXCHANGE RATES—VALUE OF ONE COUNTRY’S CURRENCY RELATIVE TO ANOTHER (QUOTES FOR LARGE TRANSACTIONS MORE FAVORABLE THAN FOR SMALLER TRANSACTIONS) • CURRENCY EXCHANGE RATES IMPACTED BY- • SUPPLY/DEMAND • RELATIVE INFLATION RATES (LOW INFLATION RATES = STRONGER CURRENCY) • RELATIVE INTEREST RATES • POLITICAL RISKS (POTENTIAL FOR CONFISCATION OR EXPROPRIATION) • ECONOMIC RISKS (FUTURE CHANGES IN THE COUNTRY’S ECONOMY)

  4. IMPACT ON EXCHANGE RATES

  5. FOREIGN CORUPT PRACTICES ACT (1978) – MAKES BRIBES TO FOREIGN OFFICIALS ILLEGAL, REQUIRES GOOD INTERNAL ACCOUNTING CONTROLS • FUTURES MARKET – USED TO LOCK IN EXCHANGE RATES TO AVOID DETERIATION OF TRANSACTION VALUE • EXPORT-IMPORT BANK—U.S. AGENCY DESIGNED TO ASSIST INTERNATIONAL TRADE (LOANS TO FOREIGN COUNTRIES AND GOVERNMENTS TO BUY U.S. GOODS) • FINANCING INTERNATIONAL TRADE • DRAFTS—SIMILAR TO CHECKS • BANKERS ACCEPTANCES—ISSUED BY FIRM AND GUARANTED BY BANK (NOT OVER 6 MONTHS) • TRAVELER’S LETTER OF CREDIT–ARRANGEMENT TO HONOR AT SPECIFIC FOREIGN BANKS • TRAVELER’S CHECKS—SMALL DENOMINATIONS (PRIMARILY USED BY TOURISTS)

  6. BALANCING FOREIGN TRADE • REQUIRES COOPERATION AMONG NATIONS • SINCE MORE TRADE IS DONE IN U.S. DOLLARS, U.S. DECISIONS HAVE LARGE IMPACT ON WORLD TRADE • U.S. GOVERNMENT DOESN’T CONTROL DECISIONS TO IMPORT AND EXPORT, INDIVIDUALS AND FIRMS DO • OVER 10% OF U.S. NATIONAL INCOME COMES FROM SELLING GOODS TO FOREIGNERS • GENERALLY, INTERNATIONAL TRADE BENEFITS ALL COUNTRIES • CONSUMERS BENEFIT BY GETTING LOWER COST GOODS SINCE THE GOODS COME FROM THE COUNTRY WHERE THEY ARE PRODUCED MOST EFFICIENTLY • PRODUCERS BENEFIT BY HAVING AN EXPANDED MARKET

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