UNIT 1

Evolution of the international Monetary System

https://www.wallstreetmojo.com/international-monetary-system/

Exchange Rate Arrangements:

The IMF classification (its latest version) contains ten basic types of exchange rate policy, which
differ based on how flexible or inflexible the exchange rate is. These are presented in Figure 1,
where the number of countries in a given category as of April 2009 is given in parentheses.
a) Hard peg:
• no separate legal tender—another country’s currency is used as legal tender;
• currency board—a regime is established by law in which the national currency is
exchanged for a foreign currency at a fixed rate, and the authorities are limited to providing
guarantees of their commitments.
b) Soft peg:
• conventional peg—for at least six months, the exchange rate fluctuates within some 2
percent interval (or ±1 percent) in relation to the officially announced exchange rate of another
currency or a basket of currencies;
• stabilized arrangement—for at least six months, the exchange rate fluctuates within some
2 percent interval. In this case, the rate is not free-floating and is controlled by the monetary
authorities, who, however, do not officially announce its target level;
• horizontal band—the same as a conventional peg, but the fluctuations exceed ±1 percent;
• crawling peg—the same as a conventional peg, but the 2 percent interval is assigned in
relation to a level that is not fixed but can be changed periodically (either always by the same
amount or depending on some macroeconomic indicators, such as inflation). The rule for
changing the exchange rate is officially announced;
• crawl-like arrangement—the same as a crawling peg, but the 2 percent interval is
identified statistically (according to the movement of the exchange rate over six months). The
rule for changing the exchange rate is not officially announced.
Other managed arrangements. In this category, the emphasis is on the word “managed.” All
kinds of policy not classified as other types fall into this category. In particular, this is the
category in which the IMF classifies the Bank of Russia’s current policy.4
c) Floating:
• [managed] floating5 —the exchange rate is determined primarily by the market, but the
monetary authorities, if necessary (as they understand it), influence the rate by actively
conducting exchange rate interventions. In this case, they do not announce (and may not have) a
target value of the exchange rate or a target trajectory for its movement;
• free floating—the exchange rate is determined almost exclusively by the market, and the
monetary authorities conduct interventions only exceptionally (no more than three times, each
lasting no more than three days, in six months).
In applying its classification to the actual exchange rate policies of various countries, the IMF is
guided not only (and not so much) by the official declarations of the monetary authorities but
also by the informal conclusions of experts.

Reform of international monetary system:

The international monetary system refers to the framework of rules, institutions, and conventions
that govern how international payments are conducted and how exchange rates are determined.
Over the years, there have been discussions and proposals for reforming the international
monetary system to address challenges and enhance its stability and effectiveness. Here are some
key aspects and proposals for reform:
1. **Special Drawing Rights (SDRs):**
- SDRs are an international reserve asset created by the International Monetary Fund (IMF).
Some reform proposals suggest an increased role for SDRs in the international monetary system.
 - Expansion of SDR allocations to provide countries with additional liquidity during times of
economic crisis.
2. **Exchange Rate Arrangements:**
- Discussions often center around the role of flexible exchange rates versus fixed exchange
rates.
- Calls for more stable and predictable exchange rate arrangements to reduce volatility and
uncertainty.
3. **Global Reserve Currency:**
- The idea of a global reserve currency that is not tied to any specific country has been
discussed. The U.S. dollar is currently the primary global reserve currency.
- Proposals for a more diversified international monetary system with multiple reserve
currencies to reduce dependence on any single currency.
4. **Reform of IMF:**
- Calls for reforms in the governance structure of the IMF to better reflect the changing
economic landscape, including the representation of emerging market economies.
- Enhancing the role of the IMF in global economic surveillance and crisis prevention.
5. **International Cooperation:**
- Emphasis on strengthening international cooperation and coordination among central banks
and financial authorities.
- Developing mechanisms for countries to work together to address global economic
imbalances.
6. **Financial Stability and Regulation:**
- Calls for improving global financial stability through enhanced regulation and oversight of
financial markets and institutions.
- Coordinated efforts to prevent and manage financial crises at the international level.
7. **Digital Currencies:**
- The rise of digital currencies, including central bank digital currencies (CBDCs), has
prompted discussions about their potential role in the international monetary system.
- Exploration of the implications of digital currencies for cross-border payments and financial
transactions.
8. **Debt Sustainability:**
 - Addressing issues related to debt sustainability, especially for developing countries, to
prevent debt crises and promote economic stability.
9. **Climate and Sustainable Finance:**
- Integrating considerations of climate change and sustainability into the international monetary
system.
- Encouraging investments that align with environmental, social, and governance (ESG)
criteria.
Reforming the international monetary system is a complex and ongoing process that involves the
collaboration of multiple stakeholders, including governments, central banks, international
organizations, and the private sector. The goal is to create a system that fosters economic
stability, promotes sustainable development, and addresses the challenges of the evolving global
economy.
Balance of Payments Accounting:
https://www.investopedia.com/insights/what-is-the-balance-of-payments/#:~:text=The
%20balance%20of%20payments%20(BOP)%20is%20the%20method%20by%20which,account
%2C%20and%20the%20financial%20account.
https://www.youtube.com/watch?v=W0YwGLz50TA
Gains from Financial Globalization:
Financial globalization, the integration of national financial systems and markets into a global
financial system, has been a prominent feature of the modern economic landscape. While it has
generated various challenges and risks, there are also potential gains and benefits associated with
financial globalization. Some of the key gains include:
1. **Enhanced Capital Flows:**
- Financial globalization allows for the free flow of capital across borders. This enables
countries to attract foreign investment, fostering economic growth and development.
- Access to international capital markets provides opportunities for businesses and governments
to raise funds, which can be crucial for financing projects and investments.
2. **Portfolio Diversification:**
- Investors can diversify their portfolios by investing in a range of financial instruments across
different countries and regions. This diversification helps reduce risk by spreading investments
across various assets.
- Portfolio diversification allows investors to access a broader set of investment opportunities,
potentially leading to improved risk-adjusted returns.
3. **Efficient Resource Allocation:**
 - Financial globalization facilitates the efficient allocation of capital by directing funds to the
most productive and promising investment opportunities.
- Capital can flow to areas with higher returns, fostering innovation, productivity growth, and
economic development.
4. **Technology Transfer:**
- Globalized financial markets contribute to the transfer of financial technology and best
practices across borders. Financial institutions in different countries learn from each other,
leading to increased efficiency and innovation.
- Access to international financial expertise and technologies can help emerging economies
develop their financial sectors.
5. **Risk Sharing:**
- Financial globalization enables risk-sharing mechanisms. For example, countries facing
economic shocks can potentially receive financial support from international investors and
lenders.
- Risk-sharing mechanisms contribute to stability and resilience in the face of economic
challenges.
6. **Increased Liquidity:**
- Integration into global financial markets increases the liquidity of financial instruments. This
liquidity can lead to lower transaction costs and improved market efficiency.
- Investors can easily buy and sell financial assets, contributing to more dynamic and
responsive markets.
7. **Competition and Efficiency:**
- Global competition among financial institutions promotes efficiency and innovation.
Financial institutions strive to offer better products and services to attract international clients
and investors.
- Increased competition can lead to improvements in financial market infrastructure and the
development of more sophisticated financial products.
8. **Exchange Rate Stability:**
- Financial globalization can contribute to exchange rate stability by allowing for the more
efficient management of currency reserves and providing tools for hedging against currency risk.
- Well-developed and liquid foreign exchange markets can contribute to smoother currency
adjustments.
It's important to note that while financial globalization offers these potential gains, it also poses
challenges, including the risk of financial contagion, volatility, and the potential for global
imbalances. Managing these risks and ensuring that the benefits of financial globalization are
broadly shared are critical considerations for policymakers and market participants.

UNIT 2
Functions and Structures of Foreign Exchange Markets:
https://theintactone.com/2018/07/20/ifm-u2-topic-1-foreign-exchange-market-nature-structure-
types-of-transactions/
Exchange Rate Concepts and Determination
https://www.investopedia.com/terms/e/exchangerate.asp
https://www.investopedia.com/trading/factors-influence-exchange-rates/
Theories of Exchange Rate:
https://www.economicsdiscussion.net/foreign-exchange/theories-foreign-exchange/theories-of-
exchange-rate-determination-international-economics/30637
International Arbitrage
https://www.angelone.in/knowledge-center/share-market/international-
arbitrage#:~:text=International%20arbitrage%20entails%20a%20trader,to%20earn%20a
%20riskless%20gain.
Interest Rate Parity:
https://www.investopedia.com/terms/i/interestrateparity.asp#:~:text=Interest%20rate%20parity
%20(IRP)%20plays,rates%20and%20currency%20exchange%20rates.
UNIT 3
Forecasting Exchange Rates
https://fxopen.com/blog/en/7-common-ways-to-forecast-currency-exchange-rates/
#:~:text=Comparing%20economic%20conditions%20in%20two,direction%20of%20a%20pair's
%20rate.
Foreign Exchange risk: Types and Measurement:
4 Types of Risk Exposure and their Impact | Foreign Exchange (yourarticlelibrary.com)

Currency Derivatives
https://blog.dhan.co/currency-derivatives-meaning-types-uses-more/
UNIT 4
Offshore financing
https://iimskills.com/offshore-finance/
International Equity
https://www.tutorialspoint.com/international_finance/international_equity_markets.htm
International Debt
International Bond Markets (tutorialspoint.com)
Euro Currency Markets
https://www.investopedia.com/terms/e/eurocurrencymarket.asp
Trade Financing:
https://www.investopedia.com/terms/t/tradefinance.asp
Payment methods and trade financing methods
https://statrys.com/blog/int-trade-payment-methods#consignment--trade-finance-pros-&-cons
Foreign Direct Investment
https://www.investopedia.com/terms/f/fdi.asp
Cross Border M&A
https://taxguru.in/company-law/cross-border-merger-meaning-types-procedure-main-rules-
regulation.html