BUS 200 Study Guide - Final Guide: Floating Exchange Rate, Money Supply, New Trade Theory
BUS 200 GMU Final
Floating exchange rate
determined by supply and demand, less predictable than fixed or pegged
Fixed/Pegged exchange rate
value of currency is fixed/pegged to another country's, common in developing countries,
usually pegged to USD
Which works better?
Fixed/Pegged
can expand and contract money supply easier than floating
o Forces govt to have monetary discipline, behave more responsibly
o Reduces speculation
o Less uncertainty b/c you have a better idea of what's going to happen to the value of the
currency
o Only 20% of IMF members float
Gold Standard
practice of pegging currencies to gold
Gold par value
what one unit of currency was defined as to grains of gold
When did the global financial order emerge?
late 1800s to early 1900s
balance of trade equilibrium
find more resources at oneclass.com
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value of imports always = value of exports when on the gold standard
Bretton Woods
USD tied to gold, everyone else tied to USD.
collapsed b/c US detatched from gold standard.
US detatched from gold standard b/c US spending was increasing faster than our supply of gold
Jamaica Agreement
Replaced Bretton Woods.
allowed every country to float their currency if they wanted to
World Bank
created during Bretton Woods.
Goal: to promote general economic development, makes low interest loans to poor countries
to help with infrastructure
IMF
created during Bretton Woods.
Goal: maintain order in global financial system, makes loans to countries experiencing crisis
Currency crisis
a situation in which serious doubt exists as to whether a country's central bank has sufficient
foreign exchange reserves to maintain the country's fixed exchange rate. The crisis is often
accompanied by a speculative attack in the foreign exchange market.
Ex: Thailand: speculative attacks on their currency caused currency to collapse, spread to rest of
SE Asia
Banking crisis
find more resources at oneclass.com
find more resources at oneclass.com
Document Summary
Floating exchange rate determined by supply and demand, less predictable than fixed or pegged. Fixed/pegged exchange rate value of currency is fixed/pegged to another country"s, common in developing countries, usually pegged to usd. Gold standard practice of pegging currencies to gold. Gold par value what one unit of currency was defined as to grains of gold. When did the global financial order emerge? late 1800s to early 1900s balance of trade equilibrium value of imports always = value of exports when on the gold standard. Usd tied to gold, everyone else tied to usd. collapsed b/c us detatched from gold standard. Us detatched from gold standard b/c us spending was increasing faster than our supply of gold. Replaced bretton woods. allowed every country to float their currency if they wanted to. Goal: to promote general economic development, makes low interest loans to poor countries to help with infrastructure.
