Showing papers on "Currency published in 1975"

Exchange rate changes, inflation, and the value of the multinational corporation

Abstract: THE EFFECTS of differing national rates of inflation and exchange rate changes on the profitability and hence the risk of multinational corporations is currently receiving much attention from both the management of these firms and the accounting profession. In addition, the relationships between changes in currency values, both internal and external, and the international investing, trading, production, and marketing decisions of multinational firms are clearly of great interest to the national governments involved. This paper, with the aid of a two-country model, first focuses on the profitability issue. It then characterizes and analyzes an oligopolistic firm's binational profit-maximizing strategy under inflation and devaluation. The latter work draws heavily on Horst's [14] detailed examination of the effects of differing national tax and tariff rates on the profit-maximizing strategy of a firm selling to two national markets simultaneously. The unit of analysis here is the overseas subsidiary of an oligopolistic multinational corporation' which sells its (the subsidiary's) output both locally (country 1) and abroad (country 2). Country 1 is subject to both inflation and devaluation while country 2's price level and exchange rate are assumed to remain constant throughout this paper. Initially, production will be limited to country 1. The effects of relaxing this restriction to permit production in both countries will be analyzed later on. The results arrived at for a devaluation would be reversed for a revaluation. Accounting practice and economic theory are shown to diverge widely in their implications regarding the effects of these exchange rate changes. Most accountants and firms take a "balance sheet" approach in defining their exposure to exchange rate changes. This approach assumes that only financial items on the current balance sheet whose dollar (or some other base currency) value will be adversely affected by a devaluation are

The Unmaking of the Mediterranean Trade Hegemony: International Trade Rivalry and the Commercial Revolution

Abstract: The shift in the locus of European trade from the markets of the Mediterranean to the North Atlantic overthrew a centuries old pattern of commerce and established the basis for the predominant role of North Atlantic Europe in the era of industrialization. While the expression “commercial revolution” no longer has quite the currency that it once enjoyed, students of the early modern economy have not been negligent about trying to understand the causes of the commercial shift. The impact of entrepreneurship and Weltanschauung, capital accumulation, technical innovation in shipping and industry, and the economic and political organization of nation-states have all received attention from students of the age.

Direct Investment Abroad

Abstract: In this article the writer looks at the framework of exchange control and explains those aspects concerned with the financing of direct investment abroad. The emphasis is on cash flow rather than long‐term profitability with the result that the investor has to be prepared in many instances to pay the penalty of the investment currency pool premium. Attention is directed to some blind alleys and the general need to observe detailed rules for traffic in currency. With reasonable foresight official requirements need not impede a worthwhile project but cannot remove the dimension of uncertainty where foreign currency is involved.

The critical moment: the transition from currency to coinage in the eastern Mediterranean

Abstract: The use of metal for currency defined by weight can be shown by texts and material from the Near East from some time in the second millennium B.C. to the introduction of Greek‐style coinage to those areas by Alexander. The long tradition of weighing currency is shown by the elaborate weight systems of these regions and the presence of the element of weighing in the words which first meant weight and then transferred their meaning to denomination. The use of seals for identification has combined with the use of metal for currency to provide the first coins in groups where the development from currency to coinage is visible. The hoard of Lydian coins at Ephesus is one such, but an even earlier one from Zincirli provides the model of the seal for the inscription as well as the uninscribed pieces for the surface to be inscribed. As such, they illustrate the earliest surviving example of the critical moment when a piece of metal exchangeable by weight is transferred to a coin by having it first made i...

Determinants of the united states currency‐demand deposit ratio

Abstract: pertaining to the determinants of the money stock. It is widely recognized that the money stock is jointly determined by the action of the monetary institutions, through their control of the ratio of reserves to deposits and the monetary base, and the nonbanking sectors, through the public's desired proportions of currency and deposits. While the monetary authority's ability to control the reserve ratio, monetary base, and as such, the money supply has been hotly debated, relatively few economists have given explicit, formal attention to the currency ratio over time. Furthermore, economists such as Boris Pesek (1970), James Tobin (1963), and Allen Meltzer (1969) have stated that those studies of the currency ratio that do exist are basically of a verbal and ex post speculative nature. Lack of knowledge of the determinants of the currency ratio remains one of the large gaps in our understanding. This paper presents a theoretical and statistical analysis of the determinants of the currency-demand deposit ratio for the United States. Unlike previous studies of the demand for currency relative to demand deposits, this study takes explicit account of a positive rate of return on demand deposits as well as the interrelation between currency, demand deposits, time deposits and other market securities.1 Section I is devoted to a comparative static analysis which shows the currency ratio to be positively related to the time deposit rate of return, a market security rate of return, the rate of savings relative to expenditures, and a transaction variable. The currency ratio is shown to be negatively related to the net rate of return on demand deposits. In Section II, real world proxy variables are presented and contemporaneous as well as distributed lag, single equation regression models are appraised for assessing the strength of the above currency-demand deposit ratio effects.

Copper currency in central Africa: The archaeological evidence

Abstract: This paper argues that the concepts of general purpose money and special purpose money are useful in the study of prehistoric copper ingots from central Africa. It is assumed that general purpose money will often be associated with more complex cultural systems than special purpose money. Thus, the identification of general purpose money in the archaeological record may be an approximate index of the level of political and social evolution. Ethnographic and archaeological data from central Africa show that copper was used to make status symbols, decorative objects and media of exchange throughout the Iron Age. In most archaeological sites copper ingots probably represent special purpose money. Two sites which may contain general purpose money are Ingombe Ilede and Sanga. The implications of these findings to African history are discussed and the hypothesis that long‐distance trade was the primary force in the formation of the savanna states is questioned.

Exchange Risk, Political Risk, and Investor Demand for External Currency Deposits

Abstract: The growth of the external currency market is an institutional response to the costs and risks that derive from national regulation of financial transactions.l The deposits produced within the external market have combinations of exchange risk attributes and political risk attributes different from those associated with domestic deposits. Investors who acquire external deposits necessarily alter the risk attributes of their portfolios; either the currency in which their deposits are denominated or the country in which deposits are produced is changed. Frequently it is asserted that the growth of the external market has led to a change in the currency mix of investor portfolios and that investors hold a larger share of their portfolios in dollardenominated deposits than they would in the absence of the external market.2 Sometimes it is asserted that the links among national money markets have been tightened as a result of the growth of the market or investors are said to be more willing to alter the currency mix of their portfolios

Exchange-Rate Flexibility and the Efficiency of the Foreign-Exchange Markets

Abstract: Prior to the recent experience with relatively flexible exchange rates, there was much concern that a high degree of exchange-rate flexibility might somehow overburden the institutions of the foreign-exchange market, particularly the forward market, with disruptive consequences for international commerce. While seldom clearly stated, the reasoning underlying this concern usually proceeded along the following lines. Substantial exchange-rate flexibility would lead business management to expect greater exchange-rate variations, with the result that businesses would seek to cover much more of their foreign-exchange exposure (i.e., would seek to “insure” against the greater exchange-rate risk) by purchasing or selling foreign currency forward. However, foreign-exchange traders either could not accommodate this greatly increased demand for their services, or could accommodate it only at substantially higher cost. Consequently, business firms would significantly reduce the volume of their international transactions.

The Distributed Impact of Price-Level Variation on Floating Exchange Rates

Abstract: T'HIS paper presents evidence on the shortrun characteristics of purchasing-power parity (PPP) theory when account is taken of the fact that the relationship between currency purchasing powers and exchange rates is distributed over time. Distributed-lag variants of PPP theory are tested using price-level data and exchange rates between fourteen foreign currencies and the United States dollar during the period of floating exchange rates in the early 1920's. The findings suggest that in most cases the major impact of price-level movements occurred within a few months following the initial disturbance, and that the distributed effects were largely dissipated within a year's time.

Monetary independence under floating exchange rates

Abstract: THE PERIOD SINCE February 1973 provides the first opportunity since the 1920's to evaluate substantial experiences with floating exchange rate system With the exception of Canada in the 1950's, the prior experience with floating rates has been limited to the brief interludes, largely interim floating toward new parities Since the period is transitional from a pegged system to a floating system, the evidence may not be typical for a longer period The movements in the exchange rates of several countries within the last twenty months have been sharp Several currencies have appreciated by as much as 20 or 30 per cent within a few weeks; several have depreciated by as much as 10 and 15 per cent within a week Onesource of stress had been the October 1973 oil embargo and its anticipated impacts on trade balances of various countries However, much of the sharp movement in the exchange rates occurred before the embargo The contrast in the behavior of the spot rates for five major currencies relative to the dollar is evident in Table 1, both in terms of the percentage changes in the closing spot rate from one week to the next, and the spreads in percentage terms, between the maximum high and the minimum low rates for each week The frequency of large changes is substantially higher in the mark and the Swiss franc than in the yen and the Canadian dollar The appreciation of the mark until July, 1973 and its subsequent depreciation reflected variations in German monetary policy Because the major advantage attributed to a floating rate system is the increased scope for national monetary independence, the impact of changes in monetary policy on the exchange rate and on prices and employment is a critical issue in the appraisal of the advantages attributed to a floating rate system1 Central bank intervention under the floating rate system complicates the evaluation of the system's alleged advantages Numerous European countries participated in the joint float The variations in the foreign exchange value of the mark appeared to induce similar variations in other European currencies, so that a de facto mark currency area developed The movements in the Swiss franc, which was not in the snake-in-thetunnel arrangement, parallel those of the mark

Inflation-free Pricing Rules for a Generalized Commodity-Reserve Currency

Abstract: Let currency be issued with several commodities as backing. If certain pricing rules are strictly followed, it is shown that currency can then be redeemed without restriction for any of the commodities and that, according to a certain definition, the currency retains constant value, so that general inflation cannot occur.

Currency transacting apparatus

Abstract: PURPOSE: To easily and rapidly classify and sort mixed and collected currencies by so composing the apparatus that a money kind designator is provided to designate the kind of money and that when various mixed currencies are charged in an accepting part only the designated currencies are stored in a storage section. COPYRIGHT: (C)1977,JPO&Japio

The Quantity Theory in the Early Monetary System of West Africa with Particular Emphasis on Nigeria, 1850-1895

Abstract: A number of contemporary writers such as Ida Greaves, Lord Chalmers, E. K. Hawkins, Newlyn, and Rowan have written articles on monetary problems in West Africa. Such articles have concentrated on monetary matters dating from the period of European control of the area. While such writings contribute to knowledge, they leave out an important aspect of monetary problems which is directly related to the cowrie currency system and the "Great Inflation" in West Africa (Nigeria), 1850-95. By so doing, they ignore the famous Marshallian statement: "Natura non facit saltum." The purpose of this paper is to explore the operation of the quantity theory in its rudimentary form in the cowrie1 currency system of West Africa, and the Great Inflation of 1850-95 in the same geographical and economic region. The currency of any country constitutes its money. Money is anything which performs the functions of a medium of exchange and a standard of value. In order for anything to fulfill these functions, it must be generally acceptable to sellers or other creditors in settling debts. Money is anything which is generally acceptable and commonly used as a medium of payment at a particular place. The geographical territory now known as Nigeria had a cowrie currency system and was part of the cowrie currency system of West

The structural shift in the demand for money

Abstract: RECENTLY several articles have provided evidence that a structural shift occurred in the market for savings deposits during the early 1960's. Specifically, Modigliani [12] demonstrated that prior to 1962 the commercial bank time deposit rate did not affect the demand for nonbank deposits nor did nonbank rates affect the public's demand for time deposits at commercial banks. Bank and nonbank deposits apparently became strong substitutes only after 1961. Slovin [18] found that this shift in structure also characterized the deposit rate setting behavior at both bank and nonbank institutions. The explanation for this structural shift may be that the- low level of Regulation Q ceilings prior to 1962 may have seriously curtailed the ability of commercial banks to compete for savings deposits during the 1950's. During 1962 Regulation Q ceiling rates on time deposits were raised sharply.1 This triggered a substantial rise in commercial bank time deposit yields and, as a result, the differential between the deposit rate at savings and loan associations, RSL, and the time deposit rate, RTP, narrowed dramatically. The differential between these rates is graphed in Figure 1. Overall, this evidence suggests that the pattern of substitution between various types of liquid liabilities has changed over the postwar period. During the 1950's, interest sensitive funds were apparently diverted into nonbank intermediaries instead of commercial banks. The substantial rise in Regulation Q ceilings in 1962, however, significantly enhanced the ability of commercial banks to compete for deposits. It is our contention that these financial developments in the early 1960's induced a shift in the structure of the public's demand for money. Our approach is to disaggregate the demand for money into the demand for demand deposits and the demand for currency. First, we consider a standard demand for money specification and investigate whether there has been a structural shift in the pattern of substitution between money and near monies. Second, we reestimate the money demand function in order to incorporate the effect of developments in the savings market.

Currency transaction apparatus

Abstract: PURPOSE: In an automatic deposit, a transaction recording paper shall not be issued against the zero yen paying-in. COPYRIGHT: (C)1977,JPO&Japio

The Exchange Rate and U.S. Agriculture: Comment

Abstract: G. Edward Schuh has recently called attention to the relationship between currency exchange rates and agricultural prices. He emphasized that overvaluation of the dollar had depressed agricultural prices in the United States prior to 1971. However, the evidence presented by Schuh to show that the dollar was overvalued is unconvincing, and part of the price-depressing effects of overvaluation were probably shifted from American producers to foreign

Applying Decision Theory to Improve Corporate Management of Currency-Exchange Risks

Abstract: The tremendous increase in international business over the past decade has required a substantial number of corporations to deal with the risks arising from fluctuations in currency values. To do this, corporate treasurers have developed a number of decision rules to guide them in hedging against these risks. Based on the author9s experience with many financial officers involved in conducting these activities, several major alternative decision rules have been identified. Using decision theory as a reference point, this article discusses these practices in terms of their benefits and costs to the firm. A description of how many of the practical problems can be handled with decision theory and some suggested changes in corporate control procedures in this area are provided.

A factor analytic approach to an empirical definition of money

Abstract: IN RECENT YEARS, several attempts have been made to develop an empirical definition of money. Not only have different methodologies been employed in arriving at the empirical definitions of money, but the definitions vary widely from study to study. Friedman and Meiselman [6] define money to be that set of financial assets which best explains nominal income. Friedman and Meiselman [6, p. 181] employ two criteria in determining the set of assets which defines the money supply. The first criterion is that the sum of the assets should have the highest correlation with income. The second criterion is that the sum of the assets should have a higher correlation with income than any of the components taken separately. Using these criteria, Friedman and Meiselman conclude that a proper empirical definition of money is the sum of currency, demand deposits, and time deposits at commercial banks. Using the same dual criteria, Timberlake and Fortson [13] argue that time deposits have insignificant explanatory power in predicting income, and Kaufman [10] argues that the definition of money changes depending upon whether financial assets are related to income in preceding, concurrent, or later periods. Another approach to defining money empirically is the employment of elasticities of substitution among financial assets [3], [5]. For example, Chetty [3, p. 278] estimates elasticities of substitution and uses these elasticities to take into account Gurley's [7] suggestion that financial assets be weighted by their corresponding degree of "moneyness" in defining the money supply. Chetty concludes that the money supply should be a weighted sum of currency, demand desposits, time deposits, deposits in mutual savings banks, and liabilities of savings and loan associations. In this paper, a methodological and statistical approach different from the studies previously cited is employed. The analysis involves a twostage procedure. In the first stage, a set of financial assets is considered simultaneously to determine relationships among the assets within the set. The dimension of the set of assets is then reduced by the multivariate statistical technique of factor analysis. In the second stage of the analysis, the Friedman-Meiselman dual criteria are applied to the factor analytic results to determine an empirical definition of money. It will be seen that the money supply is defined to be a weighted arithmetic average of the assets considered. The factor analysis model is presented in section I, and estimated results are presented in section II of this paper. In

The selection of international borrowing sources

Abstract: In the evaluation of investment opportunities risk is often a primary con? sideration, Risk is usually not a factor of such importance, however, in the evaluation of borrowing opportunities. But when the borrowing opportunities in? clude the borrowing of foreign currencies, then the possibility of exchange rate fluctuations during the loan period may introduce a significant component of risk. It is our purpose to develop a method for evaluating and selecting inter? national borrowing sources in the face of exchange rate uncertainties. Previous quantitative work on the problem of selecting international bor? rowing sources has been almost entirely deterministic. Textbooks such as those of Robinson [11] and Zenoff and Zwick [14] discuss the choice between borrowing from the local country and borrowing from a foreign source given that the devaluation of local currency relative to that of the foreign currency during the loan period is known. In a previous paper de Faro and Jucker [1] also discuss this problem in the context of certainty and show that some of the earlier explanations were incorrect. Rutenberg [12] and Ness [8] have developed linear programming models of multinational corporations that allow for international borrowing (via inter-subsidiary transfers of funds) under certain exchange rate fluctuations. Exchange rate uncertainties have been considered primarily in the context of currency speculation and the purchase of forward exchange by Feldstein [2], Leland [5], and Folks [3]. These authors have all used the maximization of expected utility as the criterion for determining optimal forward ex? change positions. Lietaer [6] has also used the maximization of expected utility as the criterion in his programming model for generating an efficient set of policies for hedging against devaluation(s). The models of Feldstein, Leland, and Lietaer are all based on the portfolio selection model of Markowitz, and like the Markowitz model they all require the specification of a potentially large number of covariances. The model developed here is also based on the Mar? kowitz model. In an attempt to make the model operational, a substantial part

Joint determination of trade, production and financial flows in the multinational firm assuming risky currency exchange rates : a two-stage linear programming model building approach

Abstract: Salmi, Timo (1975). Joint Determination of Trade, P roduction, and Financial Flows in the Multinational Firm Assuming Risky Curr ency Exchange Rates. A two-stage linear programming model building approac h. Acta Academiae oeconomicae Helsingiensis. Series A, ISSN 0356-9969 ; 11. Oy Gaudeamus Ab, Helsinki 1975. A Doctoral Dissertation presented at the Helsinki School of Economics the 29th of May, 1975. 206 pages.