COMMERCE 4SA3 Lecture Notes - Lecture 10: Special Drawing Rights, Floating Exchange Rate, Bretton Woods System

• School: McMaster University
• Department: Commerce
• Course: COMMERCE 4SA3
• Professor: Linda Stockton

Document Summary

International monetary system: institutional arrangement that countries adopt to govern exchange rates. Floating exchange rate: a system under which the exchange rate for converting one currency into another is continuously adjusted depending on the laws of supply and demand. Pegged exchange rate: currency value is fixed relative to a reference currency. Central bank: the ge(cid:374)eri(cid:272) (cid:374)a(cid:373)e gi(cid:448)e(cid:374) to a (cid:272)ou(cid:374)tr(cid:455)(cid:859)s pri(cid:373)ar(cid:455) (cid:373)o(cid:374)etar(cid:455) authorit(cid:455). It usuall(cid:455) has the responsibility for issuing (cid:272)urre(cid:374)(cid:272)(cid:455), ad(cid:373)i(cid:374)isteri(cid:374)g (cid:373)o(cid:374)etar(cid:455) poli(cid:272)(cid:455), holdi(cid:374)g (cid:373)e(cid:373)(cid:271)er (cid:271)a(cid:374)ks(cid:859) deposits, a(cid:374)d fa(cid:272)ilitati(cid:374)g the (cid:374)atio(cid:374)(cid:859)s (cid:271)a(cid:374)ki(cid:374)g i(cid:374)dustr(cid:455). Fixed exchange rate: a system under which the exchange rate for converting one currency into another is fixed. Pegged, dirty-float, and fixed exchange rate systems all require some degree of government intervention in the foreign exchange market to maintain the value of a currency. When international trade was limited in volume, payment for goods purchased from another country was typically made in gold or silver.