Description

This book examines the issues in international economics with special emphasis on international finance. The pure theory of international trade does not require any reference to money nor to the money prices of goods. It is assumed that trade takes place in the form of barter, or that money, if present, is a veil, with no influence on the real variables. Money serves only as a reference unit, the numeraire. The consequence is that the international accounts of any country vis-a-vis all the others must balance and no balance of payment problems exists.

This book deals with the problems caused by balance-of payments disequilibria; the automatic adjustment mechanisms and the adjustment policies concerning the balance of payments; the relationship between the balance of payments and other macroeconomic variables; the various exchange-rate regimes; the problems of international liquidity and other complications of the international monetary systems.

Most international trade is not barter trade but is carried out by exchanging goods All rights reserved. for one or another currency. There are also some international economic transactions of a purely financial character which involve different currencies. Virtually every country has its own monetary unit (currency). Hence, we have a foreign exchange market where the various national currencies can be bought and sold (exchanged) for one another. We have to deal with problems arising from the existence of different currencies.

The foreign exchange market is not a precise physical but is formed by banks, brokers and other authorized agents where economic agents buy and sell the various currencies. Example of financial centers where these transactions take place include New York, London, Paris, and Frankfurt. The book defines some aspects of foreign exchange market and how the economic ugents interact in the market. Also, the sets of accounts which contain the information that is pertinent for these transactions are discussed.