国际财务管理（原书第9版）课件 Powerpoint-Presentations-All-Chapters

ChapterOneCopyright©2021bytheMcGraw-HillCompanies,Inc.Allrightsreserved.GlobalizationandtheMultinationalFirmOverviewWhat’sspecialabout“international”finance?GoalsforinternationalfinancialmanagementGlobalizationoftheworldeconomyMultinationalcorporationsCopyright©2021bytheMcGraw-HillCompanies,Inc.Allrightsreserved.1-2What’sSpecialabout“International”Finance?ThreemajordimensionssetinternationalfinanceapartfromdomesticfinanceForeignexchangeriskandpoliticalrisksMarketimperfectionsExpandedopportunitysetLargelystemfromthefactthatsovereignnationshavetherighttoissuecurrencies,formulatetheirowneconomicpolicies,imposetaxes,andregulatemovementsofpeople,goodsandcapitalacrosstheirbordersCopyright©2021bytheMcGraw-HillCompanies,Inc.Allrightsreserved.1-3ForeignexchangeriskistheriskoffacinguncertainfutureexchangeratesInadditiontobusinesses,individualsandhouseholdsmayalsobeseriouslyexposedtouncertainexchangeratesExchangeratesamongmajorcurrencies(e.g.,U.S.dollar,Japaneseyen,Britishpound,andeuro)fluctuatecontinuouslyinanunpredictablemannerExchangerateuncertaintyinfluencesallmajoreconomicfunctions,includingconsumption,production,andinvestmentWhat’sSpecialabout“International”Finance:ForeignExchangeRisk1-4Copyright©2021bytheMcGraw-HillCompanies,Inc.Allrightsreserved.MonthlyPercentageChangeinJapaneseYen—U.S.DollarExchangeRate1-5Copyright©2021bytheMcGraw-HillCompanies,Inc.Allrightsreserved.PoliticalriskarisesfrompotentiallossestotheparentfirmresultingfromadversepoliticaldevelopmentsinthehostcountryRangesfromunexpectedchangesintaxrulestooutrightexpropriationofassetsheldbyforeignersArisesfromthefactthatasovereigncountrycanchangethe“rulesofthegame”andtheaffectedpartiesmaynothaveeffectiverecourseEspeciallyrelevantinthosecountrieswithoutatraditionalruleoflaw1-6What’sSpecialabout“International”Finance:PoliticalRiskCopyright©2021bytheMcGraw-HillCompanies,Inc.Allrightsreserved.Marketimperfectionsmaybedescribedasvariousfrictions,suchastransactioncostsandlegalrestrictions,thatpreventthemarketsfromfunctioningperfectlyWorldmarketsarehighlyimperfectNumerousbarriershamperthefreemovementofpeople,goods,services,andcapitalacrossnationalboundaries(e.g.,legalrestrictions,excessivetransactionandtransportationcosts,informationasymmetry,anddiscriminatorytaxation)Restricttheextenttowhichinvestorscandiversifytheirportfolios1-7What’sSpecialabout“International”Finance:MarketImperfectionsCopyright©2021bytheMcGraw-HillCompanies,Inc.Allrightsreserved.TheExampleofNestlé’sMarketImperfectionNestléusedtoissuetwodifferentclassesofcommonstock,bearersharesandregisteredsharesForeignerswereonlyallowedtoholdbearersharesSwissresidentscouldbuyregisteredsharesThebearerstockwasmoreexpensiveOnNovember18,1988,Nestléliftedrestrictionsimposedonforeigners,allowingthemtoholdregisteredsharesaswellasbearersharesPricespreadbetweenthetwotypesnarroweddrastically1-8Copyright©2021bytheMcGraw-HillCompanies,Inc.Allrightsreserved.DailyPricesofNestlé’sBearerandRegisteredShares1-9Copyright©2021bytheMcGraw-HillCompanies,Inc.Allrightsreserved.FirmsmaybenefitfromanexpandedopportunitysetwhentheyventureintothearenaofglobalmarketsFirmscangainfromgreatereconomiesofscalewhentheirtangibleandintangibleassetsaredeployedonaglobalbasisTrueforcorporations,aswellasindividualinvestors“Itjustdoesn’tmakesensetoplayinonlyonecornerofthesandbox.”1-10What’sSpecialabout“International”Finance:ExpandedOpportunitySetCopyright©2021bytheMcGraw-HillCompanies,Inc.Allrightsreserved.GoalsforInternationalFinancialManagementThefocusofthetextistoprovidetoday’sfinancialmanagerswithanunderstandingofthefundamentalconceptsandthetoolsnecessarytobeeffectiveglobalmanagersFundamentalgoalofsoundfinancialmanagementisshareholderwealthmaximization,whichmeansthefirmmakesallbusinessdecisionsandinvestmentswithaneyetowardmakingtheownersofthefirm(i.e.,shareholders)betterofffinanciallyGenerallyacceptedinAnglo-Saxoncountries,butnotaswidelyembracedinotherpartsoftheworld1-11Copyright©2021bytheMcGraw-HillCompanies,Inc.Allrightsreserved.OtherStakeholdersInothercountriesshareholdersareviewedasmerelyoneamongmany“stakeholders”ofthefirm,othersbeing:EmployeesSuppliersCustomersBanksInJapan,managershavetypicallysoughttomaximizethevalueofthekeiretsu—afamilyoffirmstowhichtheindividualfirmsbelongs1-12Copyright©2021bytheMcGraw-HillCompanies,Inc.Allrightsreserved.CorporateGovernanceAsshownbyaseriesofrecentcorporatescandalsatcompanieslikeEnron,WorldCom,Parmalat,andGlobalCrossing,managersmaypursuetheirownprivateinterestsattheexpenseofshareholderswhentheyarenotcloselymonitoredThis“agencyproblem”isamajorweaknessofthepubliccorporationReinforcestheimportanceofcorporategovernance,thefinancialandlegalframeworkforregulatingtherelationshipbetweenafirm’smanagementanditsshareholders1-13Copyright©2021bytheMcGraw-HillCompanies,Inc.Allrightsreserved.EmergenceofGlobalizedFinancialMarketsEmergenceoftheEuroasaGlobalCurrencyEurope’sSovereignDebtCrisisof2010TradeLiberalizationandEconomicIntegrationPrivatizationGlobalFinancialCrisisof2008-2009Brexit1-14GlobalizationoftheWorldEconomy:MajorTrendsandDevelopmentsCopyright©2021bytheMcGraw-HillCompanies,Inc.Allrightsreserved.DeregulationofforeignexchangeandcapitalmarketsFinancialinnovationsresultedintheintroductionofvariousinstruments:CurrencyfuturesandoptionsMulticurrencybondsInternationalmutualfundsCountryfundsExchange-tradedfunds(ETFs)ForeignstockindexfuturesandoptionsAdvancesincomputerandtelecommunicationstechnology1-15EmergenceofGlobalizedFinancialMarketsCopyright©2021bytheMcGraw-HillCompanies,Inc.Allrightsreserved.EmergenceoftheEuroasaGlobalCurrencyMomentouseventinhistoryofworldfinancialsystemCurrentlymorethan300millionEuropeansin19countriesareusingthecommoncurrencyonadailybasisAustria,Belgium,Cyprus,Estonia,Finland,France,Germany,Greece,Ireland,Italy,Latvia,Lithuania,Luxembourg,Malta,theNetherlands,Portugal,Slovakia,Slovenia,andSpainTransactiondomainoftheeuromaybecomelargerthanthatoftheU.S.dollarinthefuture1-16Copyright©2021bytheMcGraw-HillCompanies,Inc.Allrightsreserved.Europe’sSovereign-DebtCrisisof2010InDecember2009,thenewGreekgovernmentrevealedthatitsbudgetdeficitfortheyearwouldbe12.7%ofGDP,notthe3.7%previouslyforecastInvestorssoldoffGreekgovernmentbondsandtheratingsagenciesdowngradedthemto“junk”PanicspreadtootherweakEuropeancountries(especiallyIreland,Portugal,andSpain)andquicklyescalatedtoaEurope-widedebtcrisisRevealedaprofoundweaknessoftheeuroasthecommoncurrency;Lackoffiscaldisciplineinaeuro-zonecountrycanalwaysbecomeaEurope-widecrisis1-17Copyright©2021bytheMcGraw-HillCompanies,Inc.Allrightsreserved.TheGreekDrama1-18Copyright©2021bytheMcGraw-HillCompanies,Inc.Allrightsreserved.TradeLiberalizationandEconomicIntegrationPrincipalargumentforinternationaltradeisbasedonthetheoryofcomparativeadvantageItismutuallybeneficialforcountriesiftheyspecializeintheproductionofthosegoodstheycanproducemostefficientlyandtradethosegoodsamongthemPolicyimplicationisthatliberalizationofinternationaltradewillenhancethewelfareoftheworld’scitizensOvertheyears,internationaltradehasbeenliberalizedatboththeglobalandregionallevels1-19Copyright©2021bytheMcGraw-HillCompanies,Inc.Allrightsreserved.GeneralAgreementonTariffsandTrade(GATT)isamultilateralagreementamongmembercountriesthathasreducedmanybarrierstotradeTheWorldTradeOrganization(WTO)hasthepowertoenforcetherulesofinternationaltradeRegionalarrangementshavealsobeeninstitutedtopromoteeconomicintegrationTheEuropeanUnion(EU),

forexample,includes28memberstatesthathaveeliminatedbarrierstothefreeflowofgoods,capital,andpeople1-20TradeLiberalizationandEconomicIntegrationContinuedCopyright©2021bytheMcGraw-HillCompanies,Inc.Allrightsreserved.NorthAmericanFreeTradeAgreement(NAFTA)NorthAmericanFreeTradeAgreement(NAFTA)calledforphasingoutimpedimentstotradebetweenCanada,Mexico,andtheUnitedStatesovera15-yearperiodbeginningin1994InNovember2018,thethreecountriessignedanewaccord,theU.S.-Mexico-Canada-Agreement(USMCA),butthenewaccordneedstoberatifiedinthreecountriesInMexico,theratioofexporttoGDPhasincreaseddramaticallyfrom2.2%in1973to35.6%in20171-21Copyright©2021bytheMcGraw-HillCompanies,Inc.Allrightsreserved.RecentFreeTradeAgreementsTrans-PacificPartnership(TPP)designedtoslashtariffsandfacilitatetradeamong11PacificRimmembercountriesSignedMarch2018U.S.withdrewfromthepactcitingPresidentTrump’s“Americafirst”philosophyAfricanContinentalFreeTradeAgreement(AfCFTA)Signedby49AfricancountriesAimstostimulateintra-Africantradeandinvestmentbyreducingtariffs,protectingintellectualpropertyrights,andloweringbarrierstomigration1-22Copyright©2021bytheMcGraw-HillCompanies,Inc.Allrightsreserved.Privatization

PrivatizationistheactofacountrydivestingitselfofownershipandoperationofbusinessventuresbyturningthemovertothefreemarketsystemMaybedescribedasadenationalizationprocessandoftenviewedasameanstoanendSellingstate-ownedbusinessesbringsinhard-currencyforeignreservestothenationaltreasuryOftenseenasacureforbureaucraticinefficiencyandwasteSomeeconomistsestimateprivatizationimprovesefficiencyandreducesoperatingcostsbyasmuchas20%1-23Copyright©2021bytheMcGraw-HillCompanies,Inc.Allrightsreserved.ChinesePrivatizationState-ownedenterprises(SOEs)havebeenlistedonorganizedstockexchanges,makingthemeligibleforprivateownershipChinalaunchestwostockexchangesintheearly1980sAsof2018,approximately3,600companiesarecurrentlylistedonChina’sstockexchanges“A-shares”areprimarilyreservedforChinesecitizens,whileforeignersmayinvestin“B-shares”or“H-shares”Chinesegovernmentstillretainsthemajoritystakesinmostpublicfirms1-24Copyright©2021bytheMcGraw-HillCompanies,Inc.Allrightsreserved.Factorsthatdrovethefinancialcrisis:HouseholdsandfinancialinstitutionsborrowedtoomuchandtooktoomuchriskCrisiswasamplifiedandtransmittedgloballybysecuritization;financialengineersdesignedopaqueandcomplexmortgage-basedsecuritiesthatcouldbeusedforexcessiverisk-taking“Invisiblehands”offreemarketsapparentlyfailedtoself-regulateexcesses,contributingtothebankingcrisisInternationalfinancialmarketsarehighlyinterconnectedandintegrated1-25GlobalFinancialCrisisof2008—2009Copyright©2021bytheMcGraw-HillCompanies,Inc.Allrightsreserved.1-26U.S.UnemploymentRateandDowJonesIndustrialAverage(DJIA)Copyright©2021bytheMcGraw-HillCompanies,Inc.Allrightsreserved.Brexit“Brexit”describesthevotingdecisionofamajorityofBritonstoleavetheEULikelytoweakentheUnitedKingdomandtheEU,botheconomicallyandpoliticallyLondon’spositionasthedominantcenterofEuropeanfinancemaydeteriorateiftheUKlosesunrestrictedaccesstoEurope’ssinglemarketHowdidthishappen?MajorityofvotersoutsideofLondonfeltalienatedfromtheglobalizedeconomyandwereworriedaboutcompetitionforjobsfromimmigrants60%ofLondonersvotedtoremainintheEU;45%ofvotersintherestofEnglandvotedthesameway1-27Copyright©2021bytheMcGraw-HillCompanies,Inc.Allrightsreserved.MultinationalCorporations

Amultinationalcorporation(MNC)isafirmthathasbeenincorporatedinonecountryandhasproductionandsalesoperationsinothercountriesApproximately60,000MNCsintheworldwithover500,000foreignaffiliatesBenefitfromtheeconomyofscaleinmanyways:SpreadingR&DexpendituresandadvertisingcostsovertheirglobalsalesPoolingglobalpurchasingpoweroversuppliersUtilizingtheirtechnologicalandmanagerialknow-howgloballywithminimumadditionalcosts1-28Copyright©2021bytheMcGraw-HillCompanies,Inc.Allrightsreserved.TheInternationalMonetarySystemChapterTwoCopyright©2021bytheMcGraw-HillCompanies,Inc.Allrightsreserved.OverviewEvolutionoftheInternationalMonetarySystemBimetallism:Before1875ClassicalGoldStandard:1875-1914InterwarPeriod:1915-1944BrettonWoodsSystem:1945-1972FlexibleExchangeRateRegime:1973-PresentCurrentExchangeRateArrangementsEuroandEuropeanMonetaryUnionMexicanPesoCrisisAsianCurrencyCrisisArgentinePesoCrisisRiseofChineseRMBFixedversusFlexibleExchangeRateRegimes2-30Copyright©2021bytheMcGraw-HillCompanies,Inc.Allrightsreserved.Internationalmonetarysystemwentthroughseveraldistinctstagesofevolution,summarizedasfollows:Bimetallism:Before1875Classicalgoldstandard:1875-1914Interwarperiod:1915-1944BrettonWoodssystem:1945-1972Flexibleexchangerateregime:Since19732-31Evolutionofthe

InternationalMonetarySystemCopyright©2021bytheMcGraw-HillCompanies,Inc.Allrightsreserved.Bimetallismwasa“doublestandard”inthesensethatfreecoinagewasmaintainedforbothgoldandsilverCountriesonthebimetallicstandardoftenexperiencedthewell-knownphenomenonreferredtoasGresham’slawGresham’slawdictatesthat,underthebimetallicstandard,theabundantmetalwasusedasmoneywhilethescarcemetalwasdrivenoutofcirculation,becausetheratioofthetwometalswasofficiallyfixed2-32Bimetallism:Before1875Copyright©2021bytheMcGraw-HillCompanies,Inc.Allrightsreserved.ClassicalGoldStandard:1875-1914Firstfull-fledgedgoldstandard,amonetarysysteminwhichcurrenciesaredefinedintermsoftheirgoldcontent,

wasestablishedin1821inGreatBritainMajorityofcountriesmovedawayfromgoldin1914whenWorldWarIbeganUnderthegoldstandard,theexchangeratebetweenanytwocurrencieswillbedeterminedbythegoldcontents2-33Copyright©2021bytheMcGraw-HillCompanies,Inc.Allrightsreserved.Supposethepound(£)ispeggedtogoldatsixpounds(£6)perounce,whereasoneounceofgoldisworth12francs(₣)£6=1oz.gold₣12=1oz.goldDeducingfromtheinformationgivenabove,£6mustequal₣126/12reducesto1/2;therefore£1=₣2Exchangeratebetweenthepoundandthefrancshouldthenbetwofrancsperpound2-34ClassicalGoldStandard:AnExampleCopyright©2021bytheMcGraw-HillCompanies,Inc.Allrightsreserved.2-35ClassicalGoldStandard:AdjustmentMechanismPrice-specie-flowmechanismwasanautomaticcorrectionofpaymentimbalancedbetweencountriesoperatingunderthegoldstandardBasedonthefactthatdomesticmoneystockrisesorfallsasthecountryexperiencesinflowsoroutflowsofgoldKeyshortcomingsofthegoldstandard:SupplyofnewlymintedgoldissorestrictedthatthegrowthofworldtradeandinvestmentcanbeseriouslyhamperedforlackofsufficientmonetaryreservesNomechanismtocompeleachmajorcountrytoabidebytherulesofthegameCopyright©2021bytheMcGraw-HillCompanies,Inc.Allrightsreserved.2-36InterwarPeriod:1915-1944WorldWarIendedtheclassicalgoldstandardinAugust1914MajorcountriesfollowedsterilizationofgoldpolicyCountrieswidelyused“predatory”depreciationsoftheircurrenciesasameansofgainingadvantagesintheworldexportmarketPeriodcharacterizedbyeconomicnationalism,halfheartedattemptsandfailuretorestorethegoldstandard,economicandpoliticalinstabilities,bankfailures,andpanickyflightsofcapitalacrossbordersCopyright©2021bytheMcGraw-HillCompanies,Inc.Allrightsreserved.2-37BrettonWoodsSystem:1945-1972NamedforaJuly1944meetingof44nationsatBrettonWoods,NewHampshirePurposeofmeetingwastodiscussanddesignthepostwarinternationalmonetarysystem(i.e.,BrettonWoodssystem)Describedasadollar-basedgold-exchangestandardTriffinparadoxexplainsthecollapseofthissystemintheearly1970sReserve-currencycountryshouldrunabalanceofpaymentsdeficit,butthiscandecreaseconfidenceinthereservecurrencyandleadtothedownfallofthesystemCopyright©2021bytheMcGraw-HillCompanies,Inc.Allrightsreserved.2-38TheDesignoftheGold-ExchangeSystemCopyright©2021bytheMcGraw-HillCompanies,Inc.Allrightsreserved.2-39TheFlexibleExchangeRateRegime:1973-PresentFlexibleexchangerateregimewasratifiedinJanuary1976whentheIMFmembersmetinJamaicaandagreedtoanewsetofrules,referredtoastheJamaicaAgreement:FlexibleexchangeratesweredeclaredacceptabletotheIMFmembers;centralbankscouldinterveneinexchangemarketstoironoutunwarrantedvolatilitiesGoldwasofficiallyabandoned(i.e.,demonetized)asaninternationalreserveassetNon-oil-exportingcountriesandless-developedcountriesweregivengreateraccesstoIMFfundsCopyright©2021bytheMcGraw-HillCompanies,Inc.Allrightsreserved.2-40TheTrade-WeightedValueoftheU.S.Dollarsince1964Copyright©2021bytheMcGraw-HillCompanies,Inc.Allrightsreserved.2-41CurrentExchangeRateArrangementsNoseparatelegaltenderCurrencyofanothercountrycirculatesasthesolelegaltender(e.g.,Ecuador,ElSalvador,andPanama)CurrencyboardAnextremeformofthefixedexchangerateregimeunderwhichlocalcurrencyisfullbackedbytheU.S.dollaroranotherchosenstandardcurrency(e.g.,HongJong,Bulgaria,andBrunei)ConventionalpegCountryformallypegsitscurrencyatafixedratetoanothercurrencyorbasketofcurrencies(e.g.,Jordan,SaudiArabia,andMorocco)StabilizedarrangementEntailsaspotmarketexchangeratethatremainswithinamarginof2%for6monthsormore(e.g.,Indonesia,Singapore,andLebanon)Copyright©2021bytheMcGraw-HillCompanies,Inc.Allrightsreserved.2-42CurrentExchangeRateArrangements(Continued)CrawlingpegInvolvestheconfirmationofthecountryauthorities’dejureexchangeratearrangement(e.g.,HondurasandNicaragua)Crawl-likearrangementExchangeratemustremainwithinanarrowmarginof2%relativetoastatisticallyidentifiedtrendfor6monthsormore(e.g.,Iran,China,andSerbia)PeggedexchangeratewithhorizontalbandsValueofcurrencyismaintainedwithincertainmarginsoffluctuationofatleast+/-1%aroundafixedcentralrate,orthemarginbetweenthemaximumandminimumvalueoftheexchangerateexceeds2%(e.g.,Tonga)Copyright©2021bytheMcGraw-HillCompanies,Inc.Allrightsreserved.2-43CurrentExchangeRateArrangements(Concluded)OthermanagedarrangementResidualcategoryusedwhentheexchangeratearrangementdoesnotmeethecriteriaforanyoftheothercategories(e.g.,Algeria,Cambodia,andSudan)FloatingLargelymarketdetermined,withoutanascertainableorpredictablepathfortherate(e.g.,Brazil,Korea,Turkey,India,SouthAfrica,andThailand)FreefloatingInterventionoccursonlyexceptionallyandaimstoaddressdisorderlymarketconditions;authoritiesconfirminterventionhasbeenlimitedtoatmost3instancesintheprevious6months,eachlastingnomorethan3businessdays(e.g.,Australia,Canada,Mexico,Japan,U.K.,U.S.,andeurozone)Copyright©2021bytheMcGraw-HillCompanies,Inc.Allrightsreserved.EuropeanMonetarySystemThechiefgoalsoftheEuropeanMonetarySystem(EMS)arethefollowing:Toestablisha“zoneofmonetarystability”inEuropeTocoordinateexchangeratepoliciesvis-à-visthenon-EMScurrenciesTopavethewayfortheeventualEuropeanmonetaryunionTwomaininstrumentsoftheEMS:EuropeanCurrencyUnit(ECU)ExchangeRateMechanism(ERM)2-44Copyright©2021bytheMcGraw-HillCompanies,Inc.Allrightsreserved.2-45TheEuroandtheEuropeanMonetaryUnion11of15EUcountriesadoptedacommoncurrency,theeuro,onJanuary1,1999EuropeanMonetaryUnion(EMU)createdEachnationalcurrencyoftheeuro-11countrieswasirrevocablyfixedtotheeuroataconversationrateasofJanuary1,1999EuronotesandcoinswereintroducedtocirculationonJanuary1,2002,whilenationalbillsandcoinswerebeinggraduallywithdrawnChangeovercompletedbyJuly1,2002Copyright©2021bytheMcGraw-HillCompanies,Inc.Allrightsreserved.2-46TheDollar-EuroExchangeRateCopyright©2021bytheMcGraw-HillCompanies,Inc.Allrightsreserved.TheDollar-EuroExchangeRateChangesCopyright©2021bytheMcGraw-HillCompanies,Inc.Allrightsreserved.ABriefHistoryoftheEuroMonetarypolicyforeurozonecountriesisnowconductedbytheEuropeanCentralBank(ECB)PrimaryobjectiveistomaintainpricestabilityIndependenceislegallyguaranteedEurosystemismadeupofECBandcentralbanksofeuro-zonecountries;tasksinclude:DefiningandimplementingcommonmonetarypolicyoftheUnionConductingforeignexchangeoperationsHoldingandmanagingofficialforeignreservesofeuromemberstates2-48Copyright©2021bytheMcGraw-HillCompanies,Inc.Allrightsreserved.BenefitsandCostsofMonetaryUnion2-49Copyright©2021bytheMcGraw-HillCompanies,Inc.Allrightsreserved.KeybenefitsReducedtransactioncostsEliminationofexchangerateuncertaintyEnhancedefficiencyandcompetitivenessoftheEuropeaneconomyConditionsconducivetothedevelopmentofcontinentalcapitalmarketswithdepthandliquiditycomparabletothoseoftheU.S.PoliticalcooperationandpeaceinEuropeMaincostLossofnationalmonetaryandexchangeratepolicyindependenceCurrencyCrisesThreemajorcurrencycrisesrevealedthefragilityoftheinternationalmonetarysystem(IMS)Mexicanpesocrisis(1994–1995)Asiancurrencycrisis(1997–1998)Argentinepesocrisis(2002)Copyright©2021bytheMcGraw-HillCompanies,Inc.Allrightsreserved.2-50TheMexicanPesoCrisisOnDecember20,1994,theMexicangovernmentannouncedaplantodevaluethepesoagainstthedollarby14percentThisdecisioncausedpesos,aswellasMexicanstocksandbonds,tobesoldrapidlyByearlyJanuary1995,thepesohadfallenagainsttheU.S.dollarbyasmuchas40percent,forcingtheMexicangovernmenttofloatthepesoPesocrisisrapidlyspilledovertootherLatinAmericanandAsianfinancialmarkets2-51Copyright©2021bytheMcGraw-HillCompanies,Inc.Allrightsreserved.U.S.DollarversusMexicanPesoExchangeRate

(November1,1994–January31,1995)

2-52Copyright©2021bytheMcGraw-HillCompanies,Inc.Allrightsreserved.TheMexicanPesoCrisis(Continued)MexicanPesocrisisisuniqueinthatitrepresentsthefirstseriousinternationalfinancialcrisistouchedoffbycross-borderflightofportfoliocapitalTwolessonsemerge:ItisessentialtohaveamultinationalsafetynetinplacetosafeguardtheworldfinancialsystemfromsuchcrisesMexicoexcessivelydependedonforeignportfoliocapitaltofinanceeconomicdevelopmentwhenahigherpriorityshouldhavebeenplacedonsavingdomestically2-53Copyright©2021bytheMcGraw-HillCompanies,Inc.Allrightsreserved.2-54TheAsianCurrencyCrisisFarmoreseriousthanthecrisesoftheEMSandMexicanpesointermsoftheextentofthecontagionandtheseverityoftheresultanteconomicandsocialcostsManyfirmswithforeigncurrencybondswereforcedintobankruptcyLedtoanunprecedentedlydeep,widespread,andlong-lastingrecessioninEastAsia,aregionthathasenjoyedthemostrapidlygrowingeconomyintheworldoverthelastfewdecadesCopyright©2021bytheMcGraw-HillCompanies,Inc.Allrightsreserved.AsianCurrencyCrisis2-55Copyright©2021bytheMcGraw-HillCompanies,Inc.Allrightsreserved.Ascapitalmarketswereopened,largeinflowsofprivatecapitalresultedinacreditboomintheAsiancountriesFixedorstableexchangeratesalsoencouragedunhedgedfinancialtransactionsandexcessiverisk-takingbybothborrowersandlendersTherealexchangeraterose,whichledtoaslowdowninexportgrowth.Also,Japan’slong-lastingrecession(andyendepreciation)hurtneighboringcountries2-56OriginsoftheAsianCurrencyCrisisCopyright©2021bytheMcGraw-HillCompanies,Inc.Allrightsreserved.2-57OriginsoftheAsianCurrencyCrisis(Continued)IftheAsiancurrencieshadbeenallowedtodepreciateinrealterms(whichwasnotpossibleduetothefixedexchangerates),thesuddenandcatastrophicchangesinexchangeratesobservedin1997mighthavebeenavoidedEventually,somethinghadtogive—itwastheThaibhatSuddencollapseofthebhattouchedoffapanickyflightofcapitalfromotherAsiancountriesCopyright©2021bytheMcGraw-HillCompanies,Inc.Allrightsreserved.Afixed,butadjustable,exchangerateisproblematicinthefaceofintegratedinternationalfinancialmarketsInvitesspeculativeattackatthetimeoffinancialvulnerabilityIncompatibletrinitysuggestsitisverydifficult,ifnotimpossible,tohaveallthreeconditions:AfixedexchangerateFreeinternationalflowsofcapitalIndependentmonetarypolicy2-58LessonsfromtheAsianCurrencyCrisisCopyright©2021bytheMcGraw-HillCompanies,Inc.Allrightsreserved.TheArgentinePesoCrisisInFebruary1991,theArgentinegovernmentpassedtheConvertibilityLaw,linkingthepesototheU.S.dollaratparityTheinitialeconomiceffectswerepositive:Argentina’schronicinflationwascurtaileddramatically,andforeigninvestmentbegantopourin,leadingtoaneconomicboomPesoappreciatedagainstmostcurrenciesastheU.S.dollarbecameincreasinglystrongerinthesecondhalfofthe1990s2-59Copyright©2021bytheMcGraw-HillCompanies,Inc.Allrightsreserved.TheArgentinePesoCris