INTERNATIONAL FINANCIAL RELATIONS

The substance of subject:
International business: domestic, foreign and international environment of business, globalization processes.
International trade and foreign investment:
why go abroad?
Problem of currency exchange and risk of the currency exchange operations.
International monetary system.
Functions of currency
World currency or currencies: $ vs.€ vs. SDR

Currency market, currency rate of exchange and its types.
Establishing commodity and financial markets: necessity or inclination to speculation?
Why financial markets are so important and attract
attention of whole economic and financial world ?
The mirror that reflects the state of economy.
Other sources of information: state balance of payment, analysis of GDP, a level of total indebtness of the state;
The role of local and international financial markets in financing of budget deficit.

Participants of financial markets:
Who they are ?
How to assess their credibility which is the key for taking decisions in economic and financial markets?
Credit-rating and credit-rating agencies; risk assessment.
How rating granted to the state can effect its economic
and financial stability?
Major international financial institutions effecting
stability of financial systems: WB and IMF as LOLR, BIS
and national central banks.

Financial markets; operations and types of risk.
Risk management
International money and capital markets
Today - currency zones, eurozone and eurocurrency
market: eurodollars, eurocurrency securities.
Tommorrow - how it will look like?
Conglomerate of different, the most strongest, financial systems being built on sound economies,
The only one dominant financial system and several „satellites”,
One, global financial system with common currency, similar to Eurpean Economic and Monetary Union.

CONCLUSIONS:
International financial relations in environment
consists of financial and multicurrencies
systems is more complex than it appears.
Globalization processes should result in simplification
of these relations but this needs to level all economies.

Recommended readings from:
Krugman P.R., Obsfeld M., International Economics; Theory and Policy, Addison Weley Publishing
Valdez S., An introduction to global financial markets, Palgrave Macmillan
Kaźmierczak A., Monetary policy in market economy,
SGH w W-wie

INTERNATIONAL MONETARY SYSTEM
GOLD STANDARD - first recorded monetary system
From about A.D. 1200 to the present the price of gold shows increasing tendency.
Between 1933 and 1976 the price of gold rose from ab. $21 to ab. $200 per ounce (~31 g.)
Since 1976 up to 2009 gold prices fluctuated between 100 and 900 US$
During the first half of 2011 the price of gold reached the level of 1900 US$
December 1773 - Sir Isaac Newton established the price of gold at
3 pounds, 17 shillings and 10.5 pence per ounce
Since that time England was on the gold standard and until
WWI stood willing to convert gold to currency (or vice versa)
During that time London was dominant center of international finance: ab. 90% of world trade was financed in London

Most trading and industrial countries adopted gold standard:
it facilitated development of foreign trade because foreign
trade operations settlement became much easier.
Why ?
Considering the fact that money serves a standard of value for all
goods and services as well as a medium of exchange, gold was
found ideal to play the role of both standards when existing
currencies were not formely comparable and externaly exchngeable.
Now we can introduce the term : exchange rate.
If each country set a certain number of its currency units per
ounce of gold, and compares it with the numbers of currency units
per ounce from country to country the exchange rate on the basis
of gold standard between any two currencies can be set.

The period from WWI to WWII was affected mainly by political instability and sharp recession in the US economy followed by worldwide depression.
Because of that after 1931 the gold standard as it had operated
since mid- 1920s collapsed. Governments either instituted exchange control or let their currencies float to whatever values were established by currency market trading.
One result was the creation of five currency blocks for international payments purposes:
1. The exchange control area of central and south eastern Europe dominated by Germany
2. The sterling pound area - British Commonwealth and Scandinavia
3. The US dollar area - the United States and most Central and northern part of South America
4. The gold block countries of Western Europe
5. The yen area - Japan and its possessions.