Monetary Systems & Crises, Capital Markets, Strategy & Organization

These flashcards cover key concepts from the lecture on monetary systems, capital markets, and organizational strategies.

Formal Dollarization

The adoption of another country’s currency as legal tender.

Fixed Exchange Rate Regime

A monetary system that maintains a stated parity between a currency and another currency or commodity.

Currency Board

A monetary authority that maintains a fixed exchange rate with reserve backing, limiting discretion.

Pegged Regime

A currency system that ties the currency to one or more anchors, allowing for some adjustments.

Dirty Float

An exchange rate regime that is mainly market-driven but allows for government intervention.

Gold Standard

A monetary system in which countries defined their currencies in terms of a fixed amount of gold.

Gold Par Value

The official amount of gold to which a country’s currency is pegged under the gold standard.

Bretton Woods System

A fixed but adjustable exchange rate system established after World War II that anchored currencies to the U.S. dollar.

Currency Crisis

A sharp loss of confidence in a currency leading to depreciation or reserve loss.

Banking Crisis

A situation where banks face large losses, runs, or insolvency.

Foreign Debt Crisis

A crisis occurring when a country is unable to service its external debt obligations.

Moral Hazard

A situation in which protection from losses encourages riskier behavior.

Capital Market

A market for raising and trading longer-term funds, such as stocks and bonds.

Cost of Capital

The return investors require to supply funds to a company.

Equity Financing

A method of funding that provides capital in exchange for ownership claims.

Debt Financing

Borrowed funds that must be repaid with interest, without transferring ownership unless in default.

Primary Market

The market where new securities are issued and funds are directed to the issuer.

Secondary Market

The market where existing securities are traded among investors.

Systematic Risk

Marketwide risk caused by broad economic or financial forces, which cannot be fully diversified away.

Portfolio Diversification

The practice of spreading investments across various assets to reduce overall risk.

Hot Money

Highly mobile capital that moves quickly in search of short-term gains.

Patient Money

Long-term capital committed to productive investment, less likely to exit during initial trouble.

Eurocurrency

Currency deposited in a bank outside its issuing country.

Interest Rate Spread

The difference between the rates charged to borrowers and the rates paid to depositors.

Foreign Bonds

Bonds issued in a domestic market by a foreign borrower, denominated in that currency.

Eurobonds

Bonds issued outside the jurisdiction of the currency in which they are denominated.

Contagion

The spread of financial distress from one entity to others.

Impossible Trinity

The theory that a country cannot simultaneously maintain a fixed exchange rate, independent monetary policy, and full capital mobility.

Capital Mobility

The ability to move funds across borders with few restrictions.

Low-Cost Strategy

A business strategy that seeks competitive advantage by producing at lower costs.

Differentiation Strategy

A strategy that seeks to provide unique value that customers are willing to pay more for.

Value Creation

The amount by which a customer's perceived value exceeds the firm's production costs.

Core Competencies

Distinctive skills or technologies that provide a competitive advantage.

Location Economies

Cost advantages obtained by performing an activity in the optimal geographical location.

Global Web of Production Facilities

A network of production resources across various countries to exploit local advantages.

Experience Curve Effects

The reduction in unit costs as cumulative output increases.

Switching Costs

Costs incurred by customers upon changing suppliers or products.

Universal Needs

Customer needs that are broadly similar across countries.

Organizational Architecture

The total system of structure, controls, and processes used to implement strategy.

Vertical Differentiation

The distribution of decision-making authority across hierarchical levels.

Centralized Decision Making

A framework where decision-making authority is kept at the top of the hierarchy.

Decentralized Decision Making

A structure where decision-making authority is distributed to lower levels.

Integrating Mechanisms

Devices that coordinate activities across organizational units.

Impediments to Coordination

Barriers that raise the costs of managing operations across different locations.

International Structural Stages

The organization of operations by geography or product line in international business.

Control Systems

Systems that regulate behavior and outcomes within an organization.

Incentives

Rewards or penalties that motivate behavior aligned with organizational goals.

Performance Ambiguity

Situations where it is unclear which individual or unit is responsible for results.

Cost of Control

Resources expended to monitor and enforce behavior within an organization.

Processes

The routines and workflows through which work is accomplished in an organization.

Effective Organizational Architecture

Requires fit with strategy, clear responsibilities, consistent incentives, and flexibility to adapt.

Relationship between Organizational Architecture and Strategic Orientations

The alignment needed between organizational structure and the chosen strategic approach.