The Supply, Demand, and Functions of Money in Fore
Functions of Money in International Transactions
The basic function of money in International trade is the same as in domestic rate, in that is it facilitates specialization and exchange. The use of money as a medium of exchange or payment is essential to the full development of international trade.
International payments, like domestic payments are facilitated by using types of money that can be transferred from payor to payee quickly, cheaply and safely. It would be possible to make all international payments by shipping precious metals in the form of coin or bullion, or by shipping paper money, but freight costs would be high, and the risk of loss would be ever present and the speed of transferring payments would depend on the seed of transport facilities.
To avoid such costs and inconveniencies, international payments as are our domestic payments, are generally made by transferring debt claims from payor's to payees. The debts of transferred are usually deposit liabilities of banks. Many of these deposit transfers are made as in domestic payments by written orders. Some of these are ordinary checks written by bank customers. Some are checks or drafts drawn by a cashier or other bank official in his own bank or some other banks.
When it is cheap to settle international accounts by shipping gold, such situation is described as gold points. Gold points are determined by the cost of shipping gold which includes the following:
1. Packing and Cartage to and from terminals 2. Transportation expenses incurred either by land, sea, or air 3. Insurance 4. Interest while gold is in transit
Demand Transactions of foreign exchange -gives rise to autonomous payments, outflow of foreign currency to foreign countries
1. Merchandise Import - due to payment to exporter their form of currency 2. Silver and Gold Imports 3. Interest to individuals 4. Banking and Other financial charges 5. Tourist's going to other countries - tourist will en-cash local currency to foreign currency 6. Transfer of Local balance to foreign banks 7. Repurchase and Redemption of Local securities (stocks, bonds in other countries) 8. Expenditure of Local government for governmental agencies and representatives abroad 9. Payment of foreign airlines for freight and passengers fare. 10.Remittances of Local citizens to foreign countries
Supply Transactions of Foreign Exchange -gives rise to autonomous receipts, inflow of foreign currency
1. Merchandise Exports (increases reserves due to payment of foreign country) 2. Sending Manpower overseas 3. Receipts of Local ship-owners from foreigners 4. Tourist Expenditures 5. Banking and other Financial charges receivables from foreigners 6. Interests and dividends which are due from Foreign Exchange held in Foreign Countries. 7. Repurchase and Redemption of securities held in foreign countries 8. Sale of securities 9. Transfer of balance to Local banks 10. Expenditures of foreign governments in locality 11. Repayment of foreign licenses