BUS 200 Chapter Notes - Chapter 11: European Monetary System, Floating Exchange Rate, Foreign Exchange Market
20 Jun 2017
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International monetary system: the institutional arrangements that govern exchange rates i. Recall that the foreign exchange market is the primary institution for determining exchange rates. Floating exchange rate system: where the foreign exchange market determines the relative value of a currency i. U. s dollar, the euro, the yen, and pound. Used to keep consistency with hopes to stabilize their exchange rate; typically pegging into the u. s dollar for stabilizing. Dirty float: when market forces determine the value of a currency, but with central bank intervention if it depreciates too rapidly against an important reference currency i. ii. Government can intervene and help save the currency iii. Fixed exchange rate system: countries fix their currencies against each other at a mutually agreed upon value i. The origin of the gold standard dates to ancient times when gold coins were a medium of exchange, unit of account, and store of value ii.
