Onkvisit S., Shaw J. International Marketing: Analysis and Strategy

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During the ﬁrst few months of 1995, the dollar

dropped by about 20 percent more against the

Japanese yen before beginning a surge of 25 percent.

The euro was introduced at $1.18 to the dollar on

1 January 1999, ﬂoated to below 83 cents in

October 2000, and soared to a record high of $1.29

in early 2004; that is, down 31 percent and back up

more than 50 percent in four years with no obvious

economic fundamentals to explain gyrations.

Early warning systems

While exchange rate movements are predictable

at longer horizons based on the countries’ varying

interest rates, business ﬁrms have to ﬁnd some prac-

tical ways to deal with short-term volatility. It may

be worthwhile to consider some early warning

systems.

While some models have as many as twenty indi-

cators, the IMF researchers have developed a simple

ﬁve-variable macroeconomic model for an after-

the-event analysis.The indicators are: degree of real

exchange rate overvaluation, size of current account

deﬁcit as a share of GDP, growth rate of exports,

rate of growth of reserves, and ratio of short-term

external debt to reserves. The model worked rea-

sonably well, producing results with relatively high

warning signals for Korea,Thailand, Indonesia, and

Malaysia, but not for the Philippines.

Investment banks have been developing their

own in-house models to predict currency crises.

One such economic model is Deutsche Bank’s

Alarm Clock (DBAC).While these models are cer-

tainly not perfect, they seem to be far superior to

some of the alternative indicators often used by the

markets and analysts. Even though there were many

false alarms, the models were able to anticipate

potentially dangerous pressures at work in foreign

exchange markets.

In addition, they are objective

and mechanical, thus minimizing analysts’ biases.

Hedging

“Hedges protect yards from dogs and businesses

from ﬁnancial exposure.”

One study found a ﬁrm’s

size (as measured by foreign exchange turnover) to

have the most important effect on its risk manage-

ment practices.The effect of size is in terms of the

use of computer technology, the use of both physi-

cal and synthetic products, and the number of both

short-term and long-term foreign funding activities

employed.

In practice, size is irrelevant because any prudent

ﬁrm must manage foreign exchange risks. One

study focused on the extent to which industry

actively manages rather than hedges foreign

exchange risk. According to the results, 70 percent

of ﬁrms trade their foreign exchange exposures, and

some traders do so without internal foreign

exchange dealing limits or controls on their position

taking.The favored techniques of risk management

are demonstrated by the extensive use of synthetic

products (options and swaps) in addition to the

more usual physical products such as spot and

forward transactions.

There are a number of hedging methods, and

they include forward contracts, swaps, or options.

One method involves the interbank market, which

offers both spot and forward transactions. An

importer or buyer may purchase foreign currency

immediately on the spot (or cash) market for

future use.When the foreign exchange is not needed

until sometime in the future, the seller (or buyer)

can turn to the forward market, usually entering

into a forward contract with a bank agreeing on the

purchase and sale of currencies at a certain price at

some future time. Smaller companies often have

trouble obtaining forward contracts from their

banks for two reasons. First, they are not well

known. Second, their transaction sizes are too small

to attract banks’ interest.

Regardless of size, any company may use the

futures market for hedging.The main difference

between forward and futures contracts is the

“standardized” sizes and delivery dates of the

futures transactions. The standardization feature

provides market liquidity, making it easy to enter

and exit the market at any time, but this same

feature excludes the likelihood of meeting individ-

ual needs exactly.

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CURRENCIES AND FOREIGN EXCHANGE

The most dominant futures market for foreign

currencies is the International Monetary Market

(IMM) division of Chicago Mercantile Exchange

(CME) in Chicago (see Figure 19.2). These global

commodities demand twenty-four-hour attention.

To meet this need, the LIFFE (London International

Financial Futures Exchange) and the SIMEX

(Singapore International Monetary Exchange), both

patterned after the IMM, make twenty-four-hour

trading a reality. SIMEX is examined in Figure 19.3.

Currency options, once illegal in the USA,

provide another hedging alternative. The most

important characteristic of options is an option

buyer’s ability to limit the loss, if the buyer’s guess

is wrong, to the premium paid. A buyer of a cur-

rency option acquires the right either to buy or sell

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CURRENCIES AND FOREIGN EXCHANGE

The Economist

charts the cost of a Big Mac at

McDonald’s restaurants around the world. The Big

Mac Index is a measure of what it costs to buy a

Big Mac in the various parts of the world. Some

people use the Big Mac Index as a convenient substi-

tute for the purchasing power parity theory, which

states that, although short-term factors may unduly

affect exchange rates once in a while, purchasing

power should be the same all over the world. The Big

Mac Index simply looks at how much a Big Mac sand-

wich costs at McDonald’s restaurants in different

countries. For example, if a Big Mac costs $2.19 in

New York City, but costs $2.78 (or 27 percent more),

in Tokyo, then the interpretation is that the Japanese

yen is 27 percent overvalued compared to the US

dollar. Similarly, if a Big Mac costs $4.21 in Norway

and 74 cents in Hungary, the krona is 92 percent over-

valued, and the forint is 66 percent undervalued.

The Big Mac Index is a surprisingly accurate com-

parative of international currency. It found in 1994,

for example, that the Japanese yen was overvalued by

more than 60 percent.While it is true that short-term

factors (e.g., politics, trade deﬁcits, and interest

rates) can greatly affect currency valuations, eco-

nomic fundamentals tend to assert themselves over

the long term.Therefore, in the case of Japan, accord-

ing to the purchasing–power–parity theory, it is only

a matter of time before the dollar would rise and the

yen would fall.

The Big Mac Index’s greatest triumph has to

do with the euro. When it was launched in January

1999, virtually all economists predicted the euro’s

rise against the dollar. The Big Mac Index suggested

instead that the euro started off signiﬁcantly overval-

ued. One of the best-known hedge funds, Soros Fund

Management, considered but disregarded the sell

signal given by the Big Mac Index. When the euro

tumbled, Soros was not happy.

In 2002, while the US dollar was riding high, the

Big Mac Index determined that the dollar was more

overvalued than at any time in the measure’s sixteen-

year history. Not long after, the dollar began its

decline, and the weakness persisted throughout 2003.

One problem with the Big Mac Index is that it is

unable to predict when the change in currency value

will take place. In 1995, in spite of the acknowledg-

ment that the dollar was greatly undervalued against

the yen, the dollar kept sinking and hitting new record

lows. However, there was some evidence of the valid-

ity of the index. In March 1995, McDonald’s Co.

Japan Ltd., the largest restaurant chain in Japan,

announced that it would cut the prices on its ham-

burgers by about 30 percent.The price cut was attrib-

uted to the rising value of the yen against the dollar

and lower operating expenses, since McDonald’s

imports many of its supplies. In April 1995, while the

US price for a hamburger was about 59 cents,

McDonald’s cut its price again in Tokyo by 38 percent

from $2.53 to the unheard price of $1.56 in Japan.

Sources:

George Anders, “What Price Lunch?”

Wall

Street Journal

, September 23, 1988; “Shorting the Yen,”

Worth

, September 1994, 61; “Big Mac Currencies,”

The Economist

, April 21, 2001, 74; “Hamburger Helper,”

CBSMarketWatch.com

, April 29, 2003.

MARKETING STRATEGY 19.1 THE BIG MAC INDEX

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CURRENCIES AND FOREIGN EXCHANGE

Figure 19.2 Chicago Mercantile Exchange

Source:

Courtesy of Chicago Mercantile Exchange.

a ﬁxed amount of foreign currency at a set price

within a speciﬁed time period, and the buyer may

exercise this right when it is proﬁtable to do so.

Both futures and options on futures signiﬁcantly

reduce risk. However, there are two key advantages

of options on futures over futures. First, since a

trader is able to take positions smaller than standard

futures contracts, options on futures allow small

businesses to hedge more effectively. Second,

compared to futures, options on futures provide

greater ﬂexibility by allowing hedgers to cap their

exposure.

Although banks have been and still are the ﬁrst

choice of corporations seeking to manage foreign

exchange risk, exchanges have devised new ways

to attract ﬁrms or to get banks to work through

exchanges. Coca-Cola Co. hedges its foreign earn-

ings by buying options. GAF Corp., a New Jersey

specialty chemicals and building materials conglom-

erate with $1 billion in sales, works with either a

bank or an exchange, depending on the dollar vol-

ume. It uses exchanges for most of its options trans-

actions when they fall in the range of $5 million to

$25 million because exchanges are more competitive

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CURRENCIES AND FOREIGN EXCHANGE

Figure 19.3 SIMEX

Source:

Reprinted with permission

of Singapore International

Monetary Exchange Limited.

in transactions of that size.When the amounts exceed

$25 million, GAF uses banks instead.

Table 19.1 provides a comparison of a variety

of hedging methods. One study found that it is

not a common practice to adopt innovative foreign

exchange risk management products. In fact, the

simple, ﬁrst-generation product (i.e., forward con-

tracts) is still more popular among American

corporations than the second-generation (e.g.,

swaps, futures contracts, and options) and third-

generation products (e.g., cylinder options, syn-

thetic home-made forwards/options, foreign

currency warrants).

Hedging, like buying insurance, can be expen-

sive. It costs about $26 million to hedge $500

million worth of earnings.A forward contract costs

half a percentage point per year of the revenue being

hedged.

This explains why Eastman Kodak Co. has

decided to abandon hedging, believing that the

ups and downs of currencies would simply even out

in the long run.

Multinationals, due to the nature of their opera-

tions, may be able to employ a natural hedge. The

technique involves matching revenues and costs in

the same currency. One variation of the technique

is to manufacture and buy supplies locally. By using

locally earned revenues to pay for production of

local goods, a company can minimize the earnings

that must be translated or repatriated.Another vari-

ation of the method is to look at the net exposure.

Coca-Cola manages most of its foreign currency

exposures on a consolidated basis by using natural

offsets to determine the net exposure. In addition,

the weakness in one currency is often offset by the

strengths in others over time.

It should be noted that a ﬁrm’s ability to construct

operational hedges has an impact on its exchange

rate risk exposure. Those multinationals with

greater breadth are less exposed to currency risk.

In contrast, those with more highly concentrated

networks (greater depth) are more exposed.

Leading and lagging

In order to deal with the complexity of international

trade, two strategies should be considered: leading

and lagging. For an MNC with a network of sub-

sidiaries, several techniques may be used to reduce

foreign exchange. Subsidiaries with strong curren-

cies could delay or lag the remittances of dividends,

royalties, and fees. Those in weak currency coun-

tries could try to lead, or pay promptly, their liabil-

ities. It is important to recognize, however, that

these strategies involve speculation since no one

really knows the timing and extent of the movement

of a currency.

Invoicing

The currency to be used for the purpose of invoic-

ing should be considered carefully. Toyota Motor

Corp. operates two factories in England. Since the

United Kingdom has so far refused to give up the

pound sterling for the euro,Toyota faces a risk of los-

ing money when it converts its euro revenues into

pounds to pay for British-made components. To

solve the problem,Toyota has told its local suppliers

to set prices in euros for any new business. Ideally,

Toyota wants to eventually pay bills in Europe in

euros as it expands operations in the region.

When the buyer is in a soft currency but the

seller is in a hard currency, the invoice should use

the seller’s currency. However, the buyer’s currency

(or that of another selected third country) should

be used for invoicing when the buyer is in a hard

currency but the seller is in a soft currency.When

both the buyer and the seller are in soft currencies,

they should consider a third currency as an alterna-

tive, but if both are in hard currencies, it may not

matter much whether the buyer’s currency or the

seller’s currency is employed. Note that these

invoicing strategies apply also to an MNC’s sub-

sidiaries that trade with one another. Furthermore,

when the volume justiﬁes the cost, the MNC should

coordinate the invoicing activities by setting up a

reinvoicing center.

Pass-through costs

Domestic ﬁrms should not expect to improve

their performance solely on the basis of foreign com-

petitors’ misfortunes (i.e., appreciation of foreign

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CURRENCIES AND FOREIGN EXCHANGE

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Table 19.1 How foreign exchange products compare

Credit When Extent of

Need for

Who line Margin Front-end valuation limitation Type of Minimum Ease of in-house

Product arranges required required premium occurs of risk taxation size offset supervision

Borrow the foreign Bank Yes No No Periodic Both directions Ordinary Effectively Easy Yes

currency

(upside and none

downside)

Foreign exchange Bank Yes No No Maturity Both directions Capital gains Effectively Difﬁcult No

forward

none

Swap Bank Yes No No Periodic Both directions Ordinary Effectively Difﬁcult No

(settlement) none

Over-the-counter Bank No No Yes Maturity One direction (Review) Effectively Easy No

(OTC) option

none

Hybrid: Buy one Bank Yes No No Maturity Within a range (Review) Effectively Easy No

OTC option, sell

only, then none

another

unlimited

Hybrid: Collar Bank Yes No No Maturity Risk, within a Capital gains Effectively Difﬁculty or No

range, then none

easy

Exchange options:

on physicals Exchange No No Yes Maturity One direction (Review) Fixed by Easy Possibly

on futures Exchange No No Yes Maturity One direction Capital gains exchange Easy Possibly

Futures Exchange No Yes No Daily Both directions Capital gains Fixed by Easy Yes

exchange

Note

1 Although less than $1 million is rare.

Source:

Joe stein, “Forex Products Treasures Like,”

Futures

(December 1988): 35. Reprinted from

Futures

magazine, 219 Parkade, P.O. Box 6, Cedar Falls, Iowa 50613.

competitors’ currency). After all, foreign ﬁrms are

still in a position to decide how much of the cost

increase to pass on to buyers. Regarding the gap in

percentage terms between the appreciation in the

value of each country’s currency measured in dollars

and the price of its exports measured in dollars,

Japan passed on far less of its currency-induced cost

increases. Speciﬁcally, Japan passed on only 53 per-

cent of its currency-induced price increases and left

a large 47 percent gap between the increase in its

dollar-measured costs and the dollar price of its

exports.In the case of the United Kingdom,it passed

on more than the currency appreciation by 10 per-

cent and almost exactly its labor cost increases.

Germany, in contract, passed on 100 percent of its

currency increases, resulting in a 0 percent gap.

However, Germany passed on 83 percent of its labor

cost increases, leaving a 17 percent labor cost gap.

Other strategies

Hedging techniques are not adequate in managing

long-term exposure for foreign exchange risk.

Other production and marketing strategies should

be considered. This is exactly what Oki Electric

Industry Co. Ltd. did to cope with the yen’s rapid

appreciation in 1993.The company shifted produc-

tion of high-export-ratio products overseas. It built

another production plant in Thailand for printer

components and also planned to increase overseas

procurement.

Renault, a French car maker, believes that geo-

graphic diversiﬁcation is a natural hedge. The

assumption is that the many currencies will balance

each other out. This assumption, however, may be

occasionally debatable. Renault itself lost $108 mil-

lion in one quarter in 1992 due partly to the sharp

devaluations of the British and Italian currencies.

Globalization offers protection from currency

ﬂuctuations. One study conﬁrmed that exchange

rate uncertainty, while having a negative effect on

capacity expansions by domestic companies, has

no effect on investment by multinational ﬁrms.

Evidently, multinational corporations can manage

exchange rate uncertainty better than domestic

ﬁrms because they are able to shift their production

among different countries to minimize the effects of

uncertainty.

In the late 1980s, Komatsu was hit hard by the

strong yen.To solve this problem, this Japanese ﬁrm

established strategic alliances overseas to shift pro-

duction abroad. Komatsu has a joint venture with

Dresser Industries in the USA while being linked

in Europe with Hanomag, which has 20 percent of

the German wheel-loader and bulldozer market.

In addition to its ties with Korea’s Samsung

Shipbuilding and Heavy Industries, Komatsu

imports sheet metal parts from its Indonesian joint

venture and has a long-standing agreement with

Robbins, a US ﬁrm, on underground machinery.

Japanese multinationals have demonstrated how

they have been able to cope – painfully but success-

fully – with the strong yen. In the early 1980s,

Japan’s net foreign assets were only $25 billion.The

overseas stake should exceed $1 trillion at the end

of the century.These assets should earn Japan a large

amount of proﬁts, dividends, and interest.

Japanese exporters have responded to the

surging yen by sacriﬁcing proﬁt margins in order to

hold the line on export prices in real terms. They

have accelerated their direct investment in nearby

Asia to capitalize on low cost labor.At the same time

they have shifted production at home from com-

modity-type products to high-value quality prod-

ucts. In addition, geographic diversiﬁcation has

allowed Japanese ﬁrms to soften losses due to yen

appreciations.

Finally, it should be pointed out that an

exporter’s overvalued currency may still have some

unintended beneﬁts. Japanese ﬁrms have been able

to use their overvalued yen to buy raw materials

from abroad at a lower cost, thus reducing their

manufacturing costs. Furthermore, the adverse cur-

rency movement may allow a company to show

market commitment while gaining market share.

CONCLUSION

This chapter, although somewhat technical in

nature, has covered various ﬁnancial circumstances

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CURRENCIES AND FOREIGN EXCHANGE

related to international marketing. Borrowing

money is one thing, but exchanging money is

another matter altogether. There have been, there

are, and there always will be dreadful accounts

about how companies were caught short by the

devaluation of a currency. For decades, authorities

have debated the merits of the various competing

currency exchange systems. Although no single

system is able to eliminate completely the volatility

of rate movements, there is at present no superior

alternative to the system of managed ﬂoating rates.

Regardless of the exchange rate system used, rate

changes are almost always a certainty, and thus some

degree of risk is inevitable. Because MNCs have no

determination with regard to the exchange systems

– ﬁxed or ﬂoating rates – they must attempt to

reduce their foreign exchange exposure. To hedge,

multinationals may consider any one of the following

markets: spot, forward, futures, options, and bro-

kers’ services. Other alternatives may include using

adjustable prices and billing in strong currencies.

Due to the varying rates of inﬂation among coun-

tries, the impact of inﬂation on the value of the cur-

rency cannot be overlooked. For companies with

assets in a high-inﬂation country, the value of their

assets can be substantially and adversely affected.Yet

MNCs can beneﬁt from inﬂation if they know how

to borrow money wisely.With regard to the timing

of payment, money managers should lead in soft

currencies and lag in stronger currencies. For an

MNC with subsidiaries in many countries, reinvoic-

ing is a well-advised strategy.

In spite of an increasing number of techniques

believed to minimize foreign exchange exposure, it

is premature to expect that the methods discussed

here are all the techniques that corporate managers

can employ. With trends indicating movement

toward further deregulation in an increasingly

complex world of ﬁnancial activities, it is just a

matter of time before new strategies are created to

manage exchange risks.

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CASE 19.1 UPS AND DOWNS: A FOREIGN EXCHANGE SIMULATION GAME

What goes up must come down.This applies to most currencies as well.The up and down movements greatly and

eventually affect what consumers have to pay or are willing to pay for imported products.

For an international marketer, the effect of foreign exchange rate changes on operations and pricing is unavoid-

able. The marketer must estimate

how much

the value of a currency will go up or down and predict

when

the

movement will occur.This, to say the least, is not an easy task, and it perplexes even the most experienced money

manager.The marketer may be wrong about the direction of the move. Even if the guess is right, the timing may

be off. The marketer may thus initiate a move too soon or too late. Without the right timing, the marketer may

begin to question the decision concerning the direction.

Assuming that the marketer made the right decisions on the direction and timing, he or she still has to con-

sider the

magnitude of change

. Or the marketer may think that the currency has moved enough and then begins

to hedge or remove the hedge. In other words, there are short-term and long-term trends.They may move together

or move in the opposite direction. In effect, it is more than just making one basic decision. Every day (or even

every minute) poses a new situation requiring a decision about whether the action is necessary.

Assume you are going to export your products to both Japan and Germany, and assume that the value of the

merchandise is $100,000 for each country. You will receive payments in Japanese yen and euro respectively in

three months. Your net proﬁt margin is 5 percent. Consult the exchange rates for today by looking up the infor-

mation in a daily newspaper. One convenient method is to consider the currency futures tables that may be found

in the the

Wall Street Journal

and many daily newspapers. The

Wall Street Journal

and

New York Times

also

provide options information (simply consider the nearby month as a benchmark). It should be noted that the sizes

of the currency contracts are the same for both futures and options.

Points to consider

1 Since you will receive payments in three months, do you think that there is any need to hedge your exposure?

2 Assuming that hedging is desirable, what is your hedging preference: cash, forward, futures, or options?

3 Do you want to hedge both the Japanese yen and euro?

4 When do you want to hedge? (NB: You can hedge at any time within three months.)

5 Consider the exchange rates at the end of the three-month period and see how the proﬁt from the sale of

your products is affected by the rate changes as determined by your decisions.

QUESTIONS

1 Explain how inﬂation and nationalism make it impossible for a single global currency to exist.

2 Why do companies involved in international trade have to hedge their foreign exchange exposure?

3 Distinguish between the spot market and the forward market.

4 Should an exporter use the spot rate or forward rate for quotation?

5 Is devaluation good for exports and imports? Why is the impact of devaluation usually not immediate?

6 Explain how these exchange rate systems function: (1) gold standard, (b) par value, (c) crawling peg, (d)

wide band, and (e) ﬂoating.

7 How does a clean ﬂoat differ from a dirty ﬂoat?

8 How can an MNC hedge or cover its foreign exchange exposure?

9 How does the forward market differ from the futures and options markets?

10 How does inﬂation affect a country’s currency value? Is it a good idea to borrow or obtain ﬁnancing in a

country with high inﬂation?

11 What are leading and lagging, and how should they be employed with regard to payment and collection?

DISCUSSION ASSIGNMENTS AND MINICASES

1 Should the world abolish all local currencies except the US dollar, which would function as a global cur-

rency?

2 Should the world adopt a basket of the ﬁve or ten leading currencies (e.g., US dollar, Japanese yen, Swiss

franc) as a global currency for international trade?

3 Should European ﬁrms insist on the euro for all buying as well as selling transactions?

4 Japan has aggressively pursued the lower yen value. Is this strategy good for Japan?

5 Should the USA abandon the ﬂoat in favor of the gold standard or some other type of ﬁxed or semiﬁxed

system?

6 Both ﬁxed and ﬂoating rates claim to promote exchange rate stability while controlling inﬂation. Is it pos-

sible for these two divergent systems to achieve the same goals?

7 How should an MNC reduce its foreign exchange risks?

8 Honda was the ﬁrst of the Japanese car makers to manufacture its cars in Ohio for the US market. The

success of its assembly plant in Marysville (Ohio) led to a second Ohio plant. Honda also began exporting

its cars from the American plant to Japan. Mazda and Mitsubishi followed suit. Other Japanese companies

that export or plan to export products or components made in the USA to Japan include Hitachi, Yamaha,

Fujitsu, and Sony. Politically and ﬁnancially, what are the beneﬁts of (a) manufacturing cars in the USA for

US consumption, and (b) exporting cars to Japan?

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CURRENCIES AND FOREIGN EXCHANGE

9 International travelers often wonder why it is necessary to have so many different currencies. Obviously it

would be preferable to have just one worldwide currency that could be used anywhere on Earth. After all,

the ﬁfty states of the USA use the US dollar, and most members of the European Union use the euro. If the

euro can replace the mark, franc, and others, it should also be theoretically possible to have a single world

currency. If not, at the least, the big three currencies (the US dollar, euro, and yen) should ﬁx the exchange

rates among themselves, preferably at the rates of $1, €1, and ¥100.These currencies could form a common

monetary policy that serves as the anchor for the world price level.

Nobel Prize economist Robert Mundell has been advocating a new world currency that merges the dollar,

euro, and yen. All currencies will then be converted into this international money.The supply of this currency

will be supervised by an international board, and monetary gains from its issue will be split along the IMF

quotas. As suggested by Mundell, the name of the world currency should be the

dey

(dollar, euro, yen) or

perhaps the

intor

Is it practical to create and introduce the world currency as envisioned? Assess the likelihood of success

of this universal currency.

NOTES

1 Robert D. Laurent, “Is There a Role for Gold in Monetary Policy?”

Economic Perspectives

(March/April

1994): 2–14.

2 Jack L. Hervey, “Europe at the Crossroads,”

Chicago Fed Letter

, August 1993, 1–3.

3 “Turkish Lira Plummets in Economic Crisis,”

San José Mercury News

, February 22, 2001.

4 “A New Stability in Mexico’s Economy,”

Business Week

, November 7, 1994, 26.

5 “Dollar Doldrums Alone Won’t Force the Fed to Tighten,”

Business Week

, July 11, 1994; “The Unloved

Buck,”

Wall Street Journal

, June 27, 1994.

6 “Study Examines Effectiveness of Foreign Exchange Market Intervention,”

IMF Survey

, March 22, 1993,

82–3.

7 “A New Way of Looking at Exchange Rate Regimes,”

IMF Survey

, November 4, 2002, 344–5.

8 “In Brief,”

Finance & Development

(September 2002): 3.

9 “A New Way.”

10 “Alan Blinder Draws Seven Key Lessons for International Finance from Tumultuous 1990s,”

IMF Survey

November 20, 2000, 383–4.

11 Judy Shelton,

Money Meltdown: Restoring Order to the Global Currency Sy

stem (New York, NY: Free Press,

1994).

12 Michael Spencer, “Book Review,”

Finance & Development

(March 1995): 53.

13 Laurent, “Role for Gold.”

14 Peter J. Quirk and Hernan Cortes-Douglas, “The Experience with Floating Rates,”

Finance & Development

(June 1993): 28–31.

15 “Have Asian Crisis Countries Reverted to Precrisis Exchange Rate Practices?”

IMF Survey

, February 25,

2002, 56–9.

16 Andrew Berg and Catherine Pattillo,

The Challenge of Predicting Economic Crises, Economic Issues No. 22

(International Monetary Fund), 2000.

17 “Early Warning Systems: Fad or Reality?”

IMF Survey

, November 12, 2001, 347–8.

18 James T. Moser, “A Good Hedge Keeps Dogs Off the Yard,”

Chicago Fed Letter

(November 1989).

19 Jonathan Batten, Robert Mellor, and Victor Wan, “Foreign Exchange Risk Management Practices and

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