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
