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From the course by University of California, Irvine

Strategic Business Management - Macroeconomics

15 ratings

University of California, Irvine

Strategic Business Management - Macroeconomics

15 ratings

This course weds business strategy with the principles of macroeconomics. It offers valuable a powerful toolbox together with cases and lessons across all major functions of business, management, from finance, operations management, and marketing to human resource management, organizational behavior, statistics, and, of course, business strategy.

From the lesson

Exchange Rates, The Balance of Payments, and Trade Deficits

Introduction4:01

Some Balance Payments Accounting - The Current Account7:11

More Balance of Payments Accounting - The Capital Account6:01

Exchange Rates Defined6:59

Seven Reasons Exchange Rates Move - Part One8:51

Seven Reasons Exchange Rates Move - Part Two8:13

Floating Versus Fixed Exchange Rates & David Hume's Gold Specie Flow Adjustment Mechanism9:46

Hume's Theory and the Gold Standard of the Real World6:19

The Dollar Standard and Its Collapse6:12

Today's Hybrid Exchange Rate System, Currency Blocs, and Fixed Pegs9:09

The Global Spillover Effects of Fiscal and Monetary Policy8:24

Meet the Instructors

Dr. Peter Navarro
Professor
Paul Merage School of Business

[MUSIC]

So Julie what is your latest forecast for Europe?

>> I see inflation rising quickly because of rapid economic growth.

Does that mean the European Central Bank is likely to raise interest rates soon?

>> Yes, and that's why I'm recommending that we go long the European currency.

>> What do you mean by the expression go long?

>> To go long is to buy something like a stock or

a currency on the speculation that its price will be rising.

>> So why didn't you just say that?

>> Because it is shorter >> To just say, go long.

>> That's pretty funny.

>> It won't be funny if the European currency falls instead of rises on

Central Bank intervention.

>> In our last lesson, we learnt about the nuts and bolts of international trade.

And we explored the often dark and nefarious world of tariffs, quotas and

other forms of protectionism.

>> In that lesson we also learned why the Ricardian model of free

trade upon which much of the international system of global

trade is based is prone to failure when countries fail to abide

by established international laws and the norms of free trade.

In this lesson, we are going to move into the world of trade deficits and

trade surpluses and illustrate the role that exchange rates play in

determining the patterns of trade between nations.

The big picture here is this.

The topics we will cover in this lesson are some of the most critical for

both business executives and investors.

[MUSIC]

Consider that today, businesses import everything from assemblies, parts,

and natural resources for manufacturing, to products for retail sale.

At the same time, many businesses depend on thriving export markets for

their growth and prosperity.

In this world of global trade, it is virtually impossible for

a business to function, if its executive team does not have a solid understanding

of how movements and exchange rates can affect their business model and prospects.

And the best executive teams never stand passively by and

ignore exchange rate risk.

Instead they often try to hedge or leverage such risk.

[MUSIC]

Global investors likewise have a major stake in understanding what moves

exchange rate and how exchange rate movements can affect

the prices of financial assets in various countries.

For example,

a European investor may take a significant position in the American stock market.

And that market may indeed go up.

However, if the Dollar's exchange rate falls significantly relative to the Euro,

the European investor can actually money

on what appears to be a winning stock portfolio when that investor sells

the American stocks in Dollars and then converts the Dollars back to Euros.

A broader key point is this,

what you are about to learn in this lesson is not just really interesting material.

It's also essential knowledge for a 21st century of global commerce.

So when you're ready, let's get started with the next module.

[MUSIC]

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