In 1971 the fixed currency exchange system (called Bretton Woods System) in place since the end of WWII came to an end and with it the convertibility of the USD into gold. Provide 3 reasons of why the US dollar could keep its predominant position in the world since.
Please answer the following Questions. Short answers are preferred. Bullet points are ok too. It’s all about getting to the point. Please keep the overall wordcount to less than 4000 words (incl. 600 words embedded in the question catalogue). Please return your word document to me by email by Monday Dec 3 (midnight).
- In 1971 the fixed currency exchange system (called Bretton Woods System) in place since the end of WWII came to an end and with it the convertibility of the USD into gold. Provide 3 reasons of why the US dollar could keep its predominant position in the world since.
- Since 1973 the world runs on “FIAT” monetary system.
- What does that mean?
- How in this system is money created?
- What is the challenge for the central bank in this system?
- Changes in the money regime (from commodity (gold) backed to FIAT money) have often been linked to war? How come?
- Would you be in favor of reintroducing gold backed money? Why or why not?
- Has the growth of debt since the 1980s something to do with the change of the currency regime in 1971? Why or why not?
- What is Quantitative Easing and why have central banks in Western countries applied this measure in recent years?
- Please refer to the Chart package on the ilearn platform. The 3rd graph in the package ia titled “Stock market and FED Balance Sheet (QE)”.
- Describe 3 key findings briefly.
- What is a side effect of Quantitative Easing that policy makers should be concerned about?
- You have a printing business in Germany and think about expanding to Vietnam. You are contemplating buying a local company there or setting up a new subsidiary. What are some of your considerations for this decision?
- Explain how the adoption of the EURO as the single currency in the European countries may have led to different outcomes in Germany (positive) and Italy (negative)?
- Please review the presentations by your classmates on the balance of payments statistics of their home countries (see ilearn platform READINGS). Describe three key learnings for you from the presentations of your classmates.
- The US has been running a negative Current Account balance for a long time.
- Is this a problem for America?
- Is this a problem for the world?
- Unlike stocks which are mostly listed and traded on central exchanges, currencies are traded in the OTC market. How does this distinction affect you when you trade currencies with your bank? How do you protect yourself?
- Please refer to the graph in the Chart Pack titled “Financial Depth” from McKinsey (2012).
- Point to 3 striking features/lessons from this graph
- Which country are you most worried about? Why?
- James Carville, Bill Clinton’s campaign strategist, stated “If I was reincarnated, I wanted to be reborn as the bond market – because then you can intimidate everyone”
- What did he mean?
- Did Bill Clinton’s time as President coincide with a “benevolent” bond market? What may have offered a tailwind to Clinton which he had not control over?
- Inequality is at historic highs in Western nations.
- Should something be done about it? And if so what?
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