International Monetary System
Name : International Monetary System.
Category : Forex Trading
Files Source: www.mdavis.cox.smu.edu
File Added : August 26, 2010
Size : 162 KB
Download : 848
This online presentation talk about Alternative Exchange Rate Systems, A Brief History of the International Monetary System, The European Experience, Costs and benefits of a single currency, and other.
Content summary :
* Overview : If people who don’t ordinarily use the same currency are going to trade, there must be some way of exchanging currency. (If you want a Porsche, you’ve got to get German marks, or now the euro). There are an enormous number of exchange rate systems, but generally they can be sorted into one of these categories
o Freely Floating
o Managed Float
o Target Zone
o Fixed Rate
o Hybrid
Under a floating rate system, exchange rates are set by demand and supply.
* The model of demand and supply is extremely useful in explaining exchange rates under a floating system (just make sure you keep track of what currency is purchased and what is sold).
* Any number of factors might influence exchange rates, including
o price levels
o interest rates
o economic growth
Important Note:
* Even though we may call it “free float” in fact the government can still control the exchange rate by manipulating the factors that affect the exchange rate (i.e., monetary policy)
Alternate exchange rate systems: Managed Float (“Dirty Float”)
* Market forces set rates unless excess volatility occurs, then, central bank determines rate by buying or selling currency. Managed float isn’t really a single system, but describes a continuum of systems
o Smoothing daily fluctuations
o “Leaning against the wind” slowing the change to a different rate
o Unofficial pegging: actually fixing the rate without saying so.
o Target-Zone Arrangement: countries agree to maintain exchange rates within a certain bound What makes target zone arrangements special is the understanding that countries will adjust real economic policies to maintain the zone.
Alternate exchange rate systems: Fixed Rate System
* One way to do this is to dictate an exchange rate and shoot people who try to trade currency at anything other than the official exchange rate. Price controls are hard to enforce (and even if they could be enforced lead to a misallocation of resources)…………………….” Download for more information!!
