Global Finance

Features of Bretton Woods

• Fixed Exchange Rates
• Elimination of exchange restrictions
• Currency convertibility
• Development of mulilateral system of international payments

Fixed Vs Floating

Pros of Floating

• Monetary policy autonomy
• Symmetry
• Exchange rates as automatic stabilisers

Cons of Floating

• Discipline
• Destabilizing speculation and money market disturbances
• Injury to international trade and investment
• Uncoordinated economic policies
• Illusion of autonomy

Factors affecting exchange rate

• Interest rate
• Inflation rate
• Current account deficit
• Public debt
• Political stability
• Economy
• Terms of trade

Criteria for eligibility for EURO

• Inflation - 1.5% avg lowest 3 nationsbudget deficit - 3% of GDP, national debt - 60% of GDP; 
• long-term interest rate - 2% avg lowest 3 nations
• no currency devaluation prior 2 yrs
• budget deficit 3% even after member

Benefits of credit rating

• To issuers
• Disclosure and transparency
• Independent peer comparison
• Enhances T&C of borrowings
• Enhances access to new sources of funds
• To investors
• Benchmark of risk premium
• Information and reference point
• Simple global measure of credit risk
• Assist in portfolio monitoring

3 units of credit rating

• Issuer credit rating
• Issue rating
• Bank loan rating

Info required for Credit Rating

• Organisation structure
• Senior management background
• 5 years of financials
• Projections for 3 years
• List of bank lines available and usage
• Financial documents
• Descriptive data relating to operations
• Summary of corporate strategy
• Perceptions of risks and opportunities