International trade and Finance

Week 4
Section 2

Prepared by-
David LYNN
McGraw-Hill/Irwin Copyright © 2005 by The McGraw-Hill Companies, Inc. All rights reserved.
 Fixed Exchange Rate

There are two ways the price of a currency

can be determined against another. A fixed,
or pegged.

Fixed Exchange Rate is a rate the

government (central bank) sets and maintains
as the official exchange rate. A set price will
be determined against a major world
currency. (Usually the U.S. dollar)

15-2
 Floating Exchange Rate

Unlike the fixed rate, a floating exchange rate

is determined by the private market through
supply and demand.
if demand for a currency is low, its value will
decrease, thus making imported goods more
expensive and thus stimulating demand for
local goods and services. This in turn will
generate more jobs, and hence an auto-
correction would occur in the market. A
floating exchange rate is constantly changing.

15-3
 Fixed Exchange Rate

In a floating regime, the central bank

may also intervene when it is necessary
to ensure stability and to avoid inflation;
however, it is less often that the central
bank of a floating regime will interfere.

15-4
 The World Once Pegged

Between 1870 and 1914, there was a

global fixed exchange rate. Currencies
were linked to gold, meaning that the
value of a local currency was fixed at a
set exchange rate to gold ounces. This
was known as the gold standard. With
the start of World War I, the gold
standard was abandoned.

15-5
 The World Once Pegged

At the end of World War II, the

conference at Bretton Woods, in an
effort to generate global economic
stability and increased volumes of
global trade, established the basic rules
and regulations governing international
exchange.

15-6
 The World Once Pegged

International monetary system,

embodied in the
International Monetary Fund (IMF), was
established to promote foreign trade
and to maintain the monetary stability of
countries and therefore that of the
global economy.

15-7
Documents and Terms in International Trade

15-8
 Documents and Terms in

International Trade

Asia-Pacific Economic
Cooperation (APEC)

Established in November
1989, the Asia-
Pacific Economic
McGraw-Hill/Irwin Copyright © 2005 by The McGraw-Hill Companies, Inc. All rights reserved.
General Agreement on Tariff and Trade

The General Agreement on Tariffs and Trade

(typically abbreviated GATT) was originally
created by the Bretton Woods Conference as
part of a larger plan for economic recovery
after World War II. GATT included a reduction
in tariffs and other international trade barriers
and is generally considered the precursor to
the World Trade Organization.

15-10
 International Trade
Generally speaking, There are two
types of Importers

Private importers
Commercial importers

McGraw-Hill/Irwin Copyright © 2005 by The McGraw-Hill Companies, Inc. All rights reserved.
 International Trade
The exporter is responsible for:

Making an accurate and correct Customs entry

keeping all commercial documents for seven
years and producing this documentation to Customs as
required

Compliance with all legislative requirements

McGraw-Hill/Irwin Copyright © 2005 by The McGraw-Hill Companies, Inc. All rights reserved.
 International Trade

Importer Responsibilities The importer is

responsible for the following:
Making an accurate and correct Customs entry.
Monetary penalties may be imposed for entries
containing errors or omissions (see below)
Payment of all Customs charges
Keeping all commercial documents for seven years
and producing this documentation to Customs as
required
Compliance with all legislative requirements

15-13
 International Trade

Types of Import Entries

Commercial application, such as goods

for use in your business, for re-sale or
for distribution

Private use, for example, gifts or mail

order goods

15-14
 Calculation of Customs Charges

Goods and Services Tax (GST) of 12.5

percent is then calculated on the duty-
inclusive value plus international freight
and/or insurance charges.
No revenue collection will be made if the total
amount owing on the goods imported is less
than $50. The revenue waiver does not apply
to tobacco products.

15-15
 Payment of Customs Charges

Payments will only be accepted in New

Zealand currency. Cash payment (which
includes cash and cheques) is required for
imports via air or sea. Personal cheques may
only be accepted up to NZ$1,000.

MasterCard and VISA are accepted for

imports via mail. Call 0800 388 437 to make a
payment.

15-16
 Refunds

Refunds of duty and Goods and Services Tax

(GST) be made when:
Duty is paid in error
A concession is later approved for the goods
The goods are of faulty manufacture
The goods were in a damaged or deteriorated
condition prior to leaving Customs control
The goods are destroyed, pillaged or lost
prior to leaving Customs control.

15-17