International Finance For Dummies

Learn to: Master complex theories and simplify calculations Find ways to hedge against foreign exchange risk Navigate the complexities of world currencies and exchange rates Get the most out of your International Finance course International Finance For Dummies sheds light on this increasingly important subject for the growing number of students required to take this challenging course. It includes need-to-know information for understanding the foundations of international finance, factors that affect and influence exchange rates, and how real-time connectedness impacts the global economy. International Finance 101 — grasp the basics of exchange rates, the relevance of exchange rates for all sorts of international business, and how macroeconomic variables affect the changes in exchange rates Predict change — find plain-English explanations of the Monetary Approach to Balance of Payments (MBOP) and how you can use it to predict the change in the exchange rate Get rid of guesswork — discover the concepts of the Interest Rate Parity and Purchasing Power Parity and how they provide the extent of changes in the exchange rate Go international — get to know exchange rate regimes and alternative international monetary systems through underlying macroeconomic subjects Open the book and find: The impact of globalization The greater connectedness of national economics and the world economy as a whole Exchange rates and how they impact corporate firms and governments The influence of multinational corporations on the global financial scene Famous puzzles in international finance Do's and don'ts in international finance

Introduction 1 Part I: Getting Started with International Finance 9 Chapter 1: Money Makes the World Go ’Round 11 Chapter 2: Mastering the Basics of International Finance 21 Chapter 3: Buy, Sell, Risk! Users of Foreign Exchange Markets 39 Chapter 4: It’s All about Change: Changes in the Exchange Rate 51 Part II: Determining the Exchange Rate 69 Chapter 5: It’s a Matter of Demand and Supply 71 Chapter 6: Setting Up the Monetary Approach to Balance of Payments 87 Chapter 7: Predicting Changes in Exchange Rates Based on the MBOP 115 Part III: Understanding Long–Term Concepts and Short–Term Risks 135 Chapter 8: Your Best Guess: The Interest Rate Parity (IRP) 137 Chapter 9: Taking a Bite Out of the Purchasing Power Parity (PPP) 155 Chapter 10: Minimizing the FX Risk: FX Derivatives 167 Part IV: Conducting a Background Check: Changes in Currency through the Years 189 Chapter 11: Macroeconomics of Monetary Systems and the Pre–Bretton Woods Era 191 Chapter 12: The Bretton Woods Era (1944–1973) 211 Chapter 13: Exchange Rate Regimes in the Post–Bretton Woods Era 227 Chapter 14: The Euro: A Study in Common Currency 255 Part V: The Part of Tens 271 Chapter 15: Ten Important Points to Remember about International Finance 273 Chapter 16: Ten Common Myths in International Finance 279 Appendix: Famous Puzzles in International Finance 285 Index 293

Ayse Y. Evrensel, PhD, is an associate professor of Economics at Southern Illinois University. She is a member of the American Economic Association, Western Economic Association, European Union Studies Association, and Committee on the Status of Women in the Economics Profession.