The Great Recession of 2001 to 2008
Sanctions have affected North Korea and Cuba’s global economies alike. United State has been issuing sanctions to all allies of Cuba and North Korea. International banks and prospective investors have all put plans to transact with these two nations on hold in fear of being sanctioned by the United States (Yoon, 2017). Some of the foreign companies transacting in these countries have left. Many others are planning on restructuring to avoid adverse action from the US against them. International banks such as Post Finance and Panama’s Multibank have closed many Cuba and North Korea related accounts. These countries cannot export their products to other nations. They cannot also import products because no country wants to transact with them for fear of hefty penalty and sanctions. Cuba is now unable to finance its sugar harvest because no bank is willing to finance it, and the sanctions greatly hit the country’s economy.
The Great Recession of 2001 to 2008 resulted from the lowered interest rates by the Federal Reserve that made many people take mortgage loans (Giroud & Mueller, 2017). The federal policy also encouraged homeownership. The banks adjusted mortgages and their interest rates. However, The Federal Reserve increased the interest rates as it tried to keep stable rates of inflation. As a result, market interest rates escalated. The interest on the mortgage and other bank loans rose. Most industrialized nations were economically hit as many suffered debt crisis
The monetary aspect of international trade
Since a few years ago, countries have developed financial and economic interdependence than ever before (Fratzscher et al., 2019). Transnational businesses are on the increase and have reduced the difference between local production and exports. Trade liberalization and free capital movement are some of the reasons for increased interdependence.
There are two ways in which trade is affected by exchange rates; Export competitiveness and Import cost.
Import cost: If the local currency is weaker than the foreign ones, then the cost of goods is higher and thus the cost of doing business rises.
Export Competitiveness: If the local currency is stronger than that of the country one is selling, then the buyer pays a high price for the goods.