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Chapter 10

ADM 3318 - Chapter 10 Notes - The International Monetary System.docx

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ADM 3318International BusinessDecember 10th 2012Chapter 10 The International Monetary SystemIntroductionInternational Monetary System The institutional arrangements countries adopt that governs exchange ratesFloating Exchange Rate A system under which the exchange rate for converting one currency into another is continuously adjusted depending on the law of supply and demandPegged Exchange Rate A system under which the value of a countrys currency is fixed relative to a reference currency and then the exchange rate between that currency and other currencies is determined by the reference currency exchange rateDirty Float A system under which a countrys currency is nominally allowed to float freely against other currencies but in which the government will intervene if it believes the currency has devalued too far from its valueFixed Exchange Rate A system under which the exchange rate for converting one currency into another is set at a constant rateThe Gold StandardMechanics of the Gold Standard By 1880 the worlds major trading nations adopted the gold standardGold Standard The practice of pegging currencies to gold and guaranteeing convertibilityGold Par Value The amount of currency needed to purchase one ounce of goldStrength of the Gold Standard The great strength claimed by the gold standard was that it contained a powerful mechanism for achieving balanceoftrade equil
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