Sign Up Now
Get instant access to over 1 million+ study documents
OR
Already registered? click here to login
By creating your account, you agree to our terms of service, privacy policy and student honor code.
International Monetary System and Exchange Rate Policies
A report/essay: chapter 17, multinational companies. select topic research write: Multinational vs. domestic financial management exchange rates international trade international monetary system exchange rate policies trading foreign exchange european monetary union interest
rate parity/purchasing power parity international capital structures.
The international monetary system and exchange rate policies
International Monetary systems
These are a set of rules and that regulate how international trade and payments are handled. It facilitates the exchange of capital, goods and services among countries. However, this system does not have a physical presence but, it consists of interlacing rules and procedures and is influenced by the market of foreign exchange. An example of an international monetary system is the International monetary fund. These interlacing rules and procedures are referred to as exchange rate Policies.
Exchange rate policies
These are rules that officials of public finance from different nations have developed and put in place and, they modify them from time to time. These policies are also considered as physical institutions. These institutions oversee the international monetary systems.
After the World War II around 1944, 45 nations met in New Hampshire. These nations met to discuss Europe and how it would recover from the effects of the World war and also they intended to resolve issues concerning international trade and also monetary issues. This led to the establishment of the International bank which is also known as the World Bank. This was meant to manage the fixed exchange rates of the international monetary...
The member nations that were under this agreement agreed to a system that pegged the value of other currencies to that of the dollar and also pegged the dollar's value to that of gold (the Bretton Woods system). This system lasted till 1972 when the pegged exchange rate broke down and was replaced by the current exchange rate of managed float. This former system broke because the value of a nation's currency is affected by the dynamics of demand and supply and also the prices of the commodities in that nation. This is regardless of policies that peg the currency to certain policies and even fixed rate schemes. The said dynamics need to be reflected in the currency's value in the foreign exchange, and if they do not then the currency is either overvalued or undervalued compared to other currencies. When the price of a currency is either too high or too low, the international trade flow becomes distorted.
When the Bretton Wood system broke, the U.S. decided to let the dollar float against other world currencies. This was aimed at trying to find the proper value of the dollar and also tried to correct the imbalances in international funds flow and also in trade. This led to the evolution of the current managed float system Eichengreen, 2011()
Members of the International Monetary System
By becoming a member of the International monetary system, a country devotes itself to certain responsibilities found in the articles of agreement found by the IMF. These responsibilities include collaboration with other members in the system to promote and sustain a stable system of exchange rate, financial policies and domestic economic in consistence with the objectives. This…
References
Eichengreen. (2011). Exorbitant Privilege: The Rise and Fall of the Dollar and the Future of the International Monetary System
Goyal, M., Raman, Wang, and Ahmed; . ( 2011). Financial Deepening and International Monetary Stability.
Michael C. Ehrhardt, & Eugene F. Brigham. (2011). Corporate Finance (4th ed.): Cengage.
OECD. (2011). The Effects of Oil Price Hikes on Economic Activity and Inflation.
International Monetary System In world trade, varied national currencies are swapped for each other by means of rules and procedures set by a system called the international monetary system. To delineate a general standard of value for the world's currencies, such a system is believed to be necessary. The global monetary structure has always adhered to the organizational framework of the international discipline. In each stage of the financial capitalism there exists
According to Chancellor Helmut Schmidt the interest rates of the developed countries in the post1990 era were higher than they had ever been "at any time since Jesus Christ" (http://hdr.undp.org/external/HDR_papers/oc3b.htm). In 1983, in Latin America, whose devaluations were enormous, it was recorded that in one year "the effect on the individual private sector, which in [some] cases had been encouraged by the policies of the authorities to borrow, has
Monetary Policy & International Finance and Exchange Rate Monetary Policy If the central bank has an interest rate target, why would an increase in the demand for bank reserves lead to a rise in the money supply? (Use demand & supply graph) A rise in the demand for reserves will increase the federal funds target. So as to preclude this, the central bank will purchase bonds, in so doing, increasing the amount of
functions of the International Monetary system, a few significant institutions which deal with foreign currency as well as conclude on which system of exchange rates is more useful in the corporate world. History of the International Monetary System: In the start of the economical world, people were commonly in the habit of using the barter system to purchase goods that were in need. With time though, the system of trading gold
Reform of the International Monetary System The proposal for international reform that is most important is the International Lender of Last Resort. An international lender of last resort might have the ability to preclude contagion, in which an efficacious speculative attack on one emerging market currency gives rise to attacks on other emerging market currencies, propagating financial and economic disorder as it goes. Taking into consideration that a lender of last
International Monetary Fund (IMF) serves as an important function that makes international trade less challenging. The IMF is a powerful international institution that works together with the World Bank to provide support and guidance to nations in all stages of economic progress. The IMF is responsible for managing the global financial system and supplying loans to its member states to help alleviate financial problems. Agreement for its creation came at the