Pearson Education



Video Title: The G20 and the Global Monetary and Financial SystemsRun Time: 6:39Classroom Application: Instructors will find this video helpful in discussing the history and current realities of the global monetary system, as well as the role of the G20. The themes in the video also provide a starting point for discussing the nuances of the global monetary and financial systems (currency, exchange rates, regulations, etc.), and some of the issues that currently face the G20.SynopsisThis video gives an overview of the G20 and the global monetary and financial systems. It begins with a historical overview of the events that necessitated and created these systems and goes on to discuss the ways in which these systems affect global trade today. Key information regarding currency is discussed, as well as the current initiatives of the G20.Discussion Questions1.The G20 countries account for 90 percent of the world’s GDP and control just about all of the world’s financial institutions. How fair is this arrangement to the non-G20 nations?Students may respond to this question in different ways. Conventional students are likely to say that the G20 nations subscribe to the idea that policies that help the wealthy industrial nations are best for the world’s economy and produce better outcomes for all nations, taking a “rising tide lifts all boats” attitude. However, other students may point out that the G20 system is profoundly undemocratic and it is na?ve to think that wealthy countries — who have a history of imperialism and colonialism in previous centuries — are looking out for the welfare of poor and emerging nations. Recent evidence during the economic crisis that began in 2008 reveals that G20 nations are quick to impose austerity on non-G20 nations, but much more hesitant to use austerity on themselves. 2. What is the effect of China’s monetary policy on the U.S. and the rest of the world —is it harmful or beneficial?China keeps its renminbi at a low value to make exchange favorable to countries like the U.S. that receive its imports. With Chinese money kept cheap, importing countries like the U.S. find that they can purchase a lot with their dollars, keeping Chinese exports flowing. Weak renminbis also make U.S. products expensive in China, reducing U.S. exports. These two factors together tend to create enormous trade surpluses for China, and enormous trade deficits for importing countries like the U.S. None of these outcomes are especially harmful for the world economy as long as they are fairly short-term. If China persists in keeping its currency weak, the assymetry of the situation may cause real problems, as for example, U.S. manufacturing plants close down for lack of business. However, if China were to slowly increase the value of its currency, these problems would begin to disappear.3.Explain how a country with a floating currency might devalue its currency.In the simplest case, the country would print more of its own currency. If, for example, the U.S. wanted to devalue the dollar it would print more dollars and flood the currency market with dollars. With a glut of dollars in the currency market, currency traders would then begin to see the demand for dollars drop and the price of other currencies rise. With demand down, the value of dollars themselves would drop, causing prices in currency markets to fall. Thus, where 1 dollar may have purchased 0.8 euros before devaluation, the same dollar may now purchase only 0.7 euros.Quiz1. The global financial system is comprised of ______. a.banks and financial companiesb.entrepreneurs and CEOsc.currency and financial assetsd.affiliations and fundsAnswer: aExplanation: The global financial system consists of the financial institutions (banks, investment banks, financial companies) that facilitate and regulate, making it possible to trade currencies and financial assets. 2.Last year 1 euro could be exchanged for $1.25. This year the exchange rate is 1 euro = $1.20. Which of the following explains what happened? a.The dollar decreased in value relative to the euro.b.The euro increased in value relative to the dollar.c.The euro decreased in value relative to the dollar.d.The dollar in value relative to all currencies.Answer: cExplanation: A single euro will buy fewer dollars this year than it did last year. That means that the euro decreased in value relative to the dollar. 3.What was the main trigger of the financial collapse that occurred between 2008-2010? a.Sales of major European companies dropped by 20 percent.b.The Japanese stock market crashed.c.Investors lost confidence in the value of U.S. home mortgages. d.A pyramid scheme paralyzed the British economy. Answer: cExplanation: The financial collapse of 2008 originated in the U.S., where investors lost confidence in the value of home mortgages. The rapid drop in the U.S. stock market caused similar crashes throughout the world’s major economies. 4. Which of the following issues is the G20 LEAST LIKELY to discuss? a.terrorist attacks b.international tradec.green energyd.cultural heritageAnswer: dExplanation: The G20 came about when the original G5 (Britain, Germany, Japan the U.S. and France) realized that regular international leaders meetings were needed to discuss issues related to economic and social development, energy, the environment, foreign affairs, justice, terrorism and international trade. 5.What is one reason a nation would want to keep its currency weaker than other currencies? a.to lower import taxes b.to promote exportsc.to receive financial assistance d.to be able to pay workers more Answer: bExplanation: Currency is a tool for managing countries’ domestic economies. Countries that want to promote exports want their currencies to be cheaper relative to other currencies. ................
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