COMMERCE 4SA3 : Chapter 7.docx
5 Mar 2012
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Document Summary
Chapter 7 the international monetary system and the balance of payments. Exists because most countries have their own currencies. Establishes the rules by which countries value and exchange their currencies. Records international transactions and supplies vital information about the health of a national economy and likely changes in its fiscal and monetary policies. Can be used to detect signs of trouble that could eventually lead to government trade restrictions, higher interest rates, accelerated inflation, and general changes in the cost of doing business in any given country. Under the gold standard countries agree to buy or sell their paper currencies in exchange for gold. This effectively created a fixed exchange rate system. Exchange rate is the price of one currency in terms of a second currency. Fixed exchange rate system: when the price of a given currency does not change relative to each other currency.
