INTERNATIONAL FINANCIAL MANAGEMENT

Assignment

Assignment

Question 1: Are the statements below true or false? Explain the reasons for your answers.

(2.5 marks)

True, as bimetallism approach develops a fixed exchange rate between gold and silver. So, no matter how larger the supply of one metal, it would not impact the overall exchange phenomena. By definition bimetallism is the monetary system in which the role of universal equivalent is assigned to the two precious metals (gold and silver), provides for the free coinage of these metals and their unlimited circulation. Bimetallism - a system of parallel currency, the law does not establish a definite correlation between gold and silver.

It has spread in many countries remained approximately the last third of the XIX century.Treatment of the two metals as a universal equivalent was associated with certain difficulties.This role the two metals contradicts the essence of money, because the two equivalent - two measures of value, and hence the two prices (Eun & Rensick, 2009, Pp. 26-50).

(2.5 marks)

True, it is impossible for a country to have both current account and capital account in surplus in a same year. These two accounts are part of balance of payment, and according to the terminology of balance of payment, for a current account to be in surplus, the capital account deficit of same size will occur, or a deficit or a current account is always balanced by the same amount of surplus of capital account (Madura, 2009, pp.50- 67). Many people misunderstood the dfference between capital and current account. The difference between capital and current account is associated, among others, at the date of the liability:

The capital will be repaid to the partners at the end of society (in liquidation)

Contributions in current accounts are paid as soon as possible, when the cash allows.

Furthermore, it should not be confused and associated current account bank current account.The current account banking company serves, among others, to receive the funds in cash paid by the partners either in capital or at the partners' current accounts.

Question 2: Explain how did Japanese central bank intervene the exchange rate between Yen and Dollar in foreign exchange markets? (1.5 marks)

Japanese Authorities must have conducted an Open Market Operation to weaken the value of the yen. Open market operations is the buying and selling of securities (sometimes foreign currency) buy country's central bank to increase or decrease the money supply. This is an important part of monetary policy planning (Levi, 2005, pp. 488-585). It helps in managing the currency exchange rate. For weakening the yen currency, the central bank authorities of Japan, inserted more of Japanese Yen in the market by selling more of the Yen, thus the availability of Yen in large number forced the value of Yen to drop considerably.

What was the government's justification for the intervention? (2 marks)

The Japanese government was of the view that the strengthening yen against the Dollar is damaging for the Japanese export-oriented economy. So thus, central bank intervened and inserted yen equal to US S 1 billion, by selling more Yen, ...