Share
Explore BrainMass

Functions of the international monetary system

I'm working on my MBA and I need to have an idea of how should I start developing the work, please provide guidance.

The media and others suggest that the current account deficit run by the U.S. is a problem for the economy. What do you think? What action(s) would you advise federal government officials to take on this issue?

Objective: Critically analyze and evaluate real-life economic problems and opportunities by applying economic concepts, principles, and theory.
Examine the functions, opportunities, and challenges of the international monetary system.
Examine current global economic and political policies and their impact on business decisions.
Apply critical thinking skills to analyze business situations

Solution Preview

CURRENT ACCOUNT DEFICIT

First of all we should know what is BALANCE OF PAYMENT. It MAY BE DEFINED AS SYSTEMATIC RECORD OF ALL ECONOMIC TRANSACTIONS BETWEEN A RESIDENT OF THE COUNTRY AND THE REST OF THE WORLD DURING THE GIVEN PERIOD. Thus the Balance of Payments 'BOP' is an account of all transactions between one country and all other countries--transactions that are measured in terms of receipts and payments. From the U.S. perspective, a receipt represents any dollars flowing into the country or any transaction that require the exchange of foreign currency into dollars. A payment represents dollars flowing out of the country or any transaction that requires the conversion of dollars into some other currency. The three main components of the Balance of Payments are:

1. The Current Account including Merchandise (Exports Imports), Investment income (rents, profits, interest)
2. The Capital Account measuring Foreign investment in the U.S. and U.S.investment abroad, and
3. The Balancing Account allowing for changes in official reserve assets (SDR's, Gold, other payments)

Meaning of Current account deficit
Thus when imports are more than exports in current account then there is current account deficit.

Earlier the federal government budget was in surplus, which has been transformed into a yawning deficit, which will persist as far as the eye can see. At the same time, the current account deficit has reached levels, which have portended currency collapse in virtually every other instance in history. The reasons for current account deficit are;

1. Alarming Financial Deterioration in the US:

In the space of two years, the federal government budget surplus has been transformed into a yawning deficit, which will persist as far as the eye can see. At the same time, the current account deficit has reached levels which have portended currency collapse in virtually every other instance in history. The United States is now borrowing about $540 billion per year from the rest of the world to pay for the overall deficit funding ...

Solution Summary

This describes the functions, opportunities, and challenges of the international monetary system

$2.19