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Why did the fixed exchange rate regime of 1945–1973 eventually fail?
- Because of widely diverging national
- monetary and fiscal policies, differential rates of inflation, and various unexpected external
- shocks.
The U.S. dollar was the main reserve currency held by central banks, and was the key to the web of exchange rate values.
The United States ran persistent and growing deficits in its balance of payments, requiring a heavy outflow of dollars to finance the deficits.
Eventually the heavy amount of dollars held by foreigners forced the United States to devalue the dollar, because the U.S. was no longer able to guarantee conversion of dollars into its diminishing store of gold.
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Corporate Governance
The control of the firm.
- It is a broad operation concerned with
- choosing the board of directors and with setting the long run objectives of the firm.
Managing the relationship between various stakeholders in the context of determining and controlling the strategic direction and performance of the organisation.
The process of ensuring that managers make decisions in line with the stated objectives of the firm.
Management of the firm concerns implementation of the stated objectives of the firm by professional managers employed by the firm.
In theory managers are the employees of the shareholders, and can be hired or fired as the shareholders, acting through their elected board, may decide.
Ownership of the firm is that group of individuals and institutions that own shares of stock, and who elected the board of directors.
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The Market for Corporate Control
The relationship among stakeholders used to determine andcontrol the strategic direction and performance of an organization is termed corporate governance.
The corporate governance of the organization is therefore the way in which order and process is established to ensure that decisions are made and interests are represented, properly, for all stakeholders.
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Agency Theory
In countries and cultures in which the ownership of the firm has continued to be an integral part of management, agency issues and failures have been less of a problem.
In countries like the United States, in which ownership has become largely separated from management (and widely dispersed), aligning the goals of management and ownership is much more difficult.
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Stakeholder Capitalism (SCM)
- The philosophy that all of a corporation’s stakeholders should be considered, and the
- objective should be to maximize corporate wealth.
- Thus a firm should treat shareholders on a
- par with other corporate stakeholders, such as management, labor, the local community,
- suppliers, creditors, and even the government.
- The goal is to earn as much as possible in the
- long run, but toretain enough to increase the corporate wealth for the benefit of all.
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Security prices are driven by a variety of factors, but corporate earnings are clearly one of the primary drivers. And corporate earnings—on average—follow business cycles.
Exchange rates reflect the market’s assessment of the growth prospects
for the economy behind the currency.
So if securities go up with the business cycle, and currencies go up with the business cycle, why do we see currencies and securities prices
across the globe not going up and down together?
- Exchange rate values change as a result of
- many factors, not just business cycles.
Expected changes in inflation, real interest rates, political and country risk, and current account balances all influence the movement of exchange rates.
Even if business cycles were a primary driver of currency values, business cycles are not perfectly correlated globally.
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