At the beginning of World War I, this standard ceased to exist and in 1920 countries permitted greater exchange rate flexibility, which however did not last long and after the end of the World War II the Bretton Woods system has been implemented. This standard has been created as a result of numerous meetings between the World War II winning states with the final conference taking place at the Hotel in Bretton Woods, New Hampshire. The standard took the name of this last conference’s venue. In August 15, 1971 Richard Nixon in his speech announced that the price of dollar will be no longer fixed against gold. This has put an end to the Bretton Woods system and has set-off a new era in international monetary system. The main feature of this new system is that it is neither a pure gold standard nor a pure exchange rate float, but Continue reading
International Economics
Effects of Black Money on Economy
Black money is generated due to the following reasons: The people do not pay their taxes. Even if they pay taxes, they are not in correct proportions to their incomes. The tax evasions by corporate and industrial houses are to the tune of billions of rupees. These firms are able to make clever usage of the income tax rules and hence, they save taxes. This tax evasion leads to the generation of black money. The black money is earned by gifts, hawala transactions and illegal foreign exchange deals. These deals are not scrutinized by the government simply because these are without any documentary evidences. The procedures of over billing or under billing and exaggeration of expenses lead to the generation of black money. The sale and purchase of assets also lead to the generation of black money. The value of the property is shown to be very low in the Continue reading
Trade Cycle or Business Cycle Concept in Managerial Economics
Definition of Trade Cycle or Business Cycle According to Keynes, “A trade cycle is composed of periods of good trade characterized by rising prices and low unemployment percentage, alternating with periods of bad trade characterized by falling prices and high unemployment percentage. “ Characteristics of Trade Cycles From the above definition, it should be clear that trade cycle is the rhythmic fluctuations of the economy, that is, periods of prosperity followed by periods of depression. However, the waves of prosperity and depression need not always be of the same length and amplitude. Further, trade cycles varied tremendously in magnitude. While some have smaller cyclical fluctuations in economic activity, others have great intensity of fluctuations. Expansion in some cycles reaches the full employment level and stays there. However, in some cycles, the peak is reached even before full employment. Sometimes, the cyclical fluctuations may be prolonged for one reason or the Continue reading
Competitiveness for Globalization – Country and Company Competitiveness
Strategic management of a global company requires an understanding and analysis of international business environment in order to assess opportunities and threats. The management has to formulate alternative strategies to exploit the opportunities provided by the environment by using company strengths. Many MNCs having the strength of technology and the environment of developing countries provide the opportunities of high quality and low priced products. Therefore, it is necessary to study the competitiveness of global business. The comparative cost theory concludes that the countries can specialize in producing certain products in which they have the competitive advantage of producing goods at low cost. It means that the customers in all the countries can have the goods at low price. Comparative cost theory also indicates that the countries which have the advantage of raw materials, labor, natural resources in producing particular goods can produce the goods at low cost with good quality. Continue reading
Predicting Financial Distress and Corporate Failure
The financial failure of a company can have a devastating effect on all seven users of financial statements e.g. present and potential investors, customers, creditors, employees, lenders, the general public, etc. As a result, users of financial statements as indicated previously are interested in predicting not only whether a company will fail, but also when it will fail e.g. to avoid high profile corporate failures at Enron, Arthur Anderson, and WorldCom, etc. Users of financial statements can predict the financial position of an organization using the Altman Z score model, Argenti A score model, and by looking at the financial statements i.e. balance sheet, income statements, and cash flow statements. Business failure is defined as the unfortunate circumstance of a firm’s inability to stay in the business. Business failure occurs when the total liabilities exceed the total assets of a company, as total assets are considered a measure of the Continue reading
Trading Blocks Concept in International Economics
The post-second World War period has seen a growing interest in integrating national economies at regional levels. The efforts to form regional groupings, trade blocks and treaties have often floundered due to political differences and unforeseen economic hurdles. The motivation arises out of the realization of the limitations imposed by national frontiers and the expected benefits of a wider market, consisting of several national economies. Regional trade agreements represent an attempt by a group of countries to increase the flow of trade and investment by reducing direct and indirect trade barriers between them, as well as implement similar trade policies vis-Ã -vis outsiders. Multinational trade blocks are a major global trend. Most of these blocks are formed by geographically close countries, and revolve around a small group of larger economies. This is further testament to the importance of closeness and proximity in establishing network structures. Proximity in this case refers Continue reading