Introduction to Finance

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CHAPTER 
6
International Finance 
and Trade
L E A R N I N G O B J E C T I V E S
After studying this chapter, you should be able to do the following:
LO 6.1 
Explain how the international monetary system evolved and how it operates today.
LO 6.2 
Describe the eff orts undertaken to achieve economic unifi cation of Europe.
LO 6.3
Describe how currency exchange markets operate and explain how currency 
exchange rates are quoted.
LO 6.4 
Describe the factors that aff ect currency exchange rates.
LO 6.5 
Identify factors to consider when conducting business internationally.
LO 6.6
Describe how international banking systems facilitate fi nancing of sales by 
exporters and purchases by importers.
LO 6.7 
Identify recent developments in U.S. international transactions.
W H E R E W E H A V E B E E N . . .
In Chapter 5, you learned how the Fed operates in conjunction with governmental policy makers 
(the president, Congress, and the U.S. Treasury) in the common eff ort of trying to achieve the 
goals of economic growth, high employment levels, and stable prices. You now understand 
policy instruments of the Treasury and how the national debt is managed. You also learned how 
the money supply is expanded and contracted and the importance of the monetary base and 
money multiplier in setting monetary policy.
W H E R E W E A R E G O I N G . . .
In Part 2, we focus on developing a better understanding of the area of investments, including 
how securities are valued and how securities markets operate. Chapter 7 examines how savings 
are directed into various investments, and Chapter 8 discusses how interest rates, or the “price” 
of money, are determined in the fi nancial markets. Chapter 9 introduces “time” as a factor when 
determining rates of return on investments. In the remaining chapters you will learn about the 
characteristics of bonds and stocks and how they are priced or valued, how securities markets 
work, and the need to consider risk versus return trade-off s when investing in securities.

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6.1 International Monetary System