CHAPTER19The InternationalFinancial SystemChapterOutlineandLearningObjectives19.1 ExchangeRateSystems19.2 TheCurrent ExchangeRateSystem19.3International CapitalMarketsAppendix:TheGoldStandard and theBrettonWoodsSystem
1 Chapter Outline and Learning Objectives 19.1 Exchange Rate Systems 19.2 The Current Exchange Rate System 19.3 International Capital Markets Appendix: The Gold Standard and the Bretton Woods System CHAPTER 19 CHAPTER The International Financial System
ExchangeRateSystems19.1LEARNINGOBJECTIVEDescribehowdifferentexchangeratesystemsoperate@2015PearsonEducation,lnc
LEARNING OBJECTIVE © 2015 Pearson Education, Inc. 2 Exchange Rate Systems 19.1 Describe how different exchange rate systems operate
How Are Exchange Rates Determined?Intheprevious chapter,weassumedexchange ratesweredetermined by the market.. A floating currency is the outcome of a country allowing itscurrency's exchange rate to be determined by demand and supplyBut allowing the relative values of currencies to be determined bydemand and supply is just one type of exchange rate system, oragreement among countries about how exchange rates should bedetermined.: The present-day exchange rate system is best described as amanaged float exchange rate system,under whichthe value ofmost currencies is determined by demand and supply, withoccasionalgovernmentintervention.2015PearsonEducation,Inc.3
© 2015 Pearson Education, Inc. 3 How Are Exchange Rates Determined? In the previous chapter, we assumed exchange rates were determined by the market. • A floating currency is the outcome of a country allowing its currency’s exchange rate to be determined by demand and supply. But allowing the relative values of currencies to be determined by demand and supply is just one type of exchange rate system, or agreement among countries about how exchange rates should be determined. • The present-day exchange rate system is best described as a managed float exchange rate system, under which the value of most currencies is determined by demand and supply, with occasional government intervention
FixedExchangeRateSystemA fixed exchange rate system is one under which countries agree tokeep the exchange rates among their currencies fixed for longperiods.: From the 1gth century until the 1930s, countries' currencies wereredeemable for fixed amounts of golda system known as thegold standard. The amount of gold each for which currency wasredeemable determined the exchange ratesAfter the Great Depression of the 1930s, most countries abandonedthe gold standard. In 1944, a conference in Bretton Woods, NHestablished the Bretton Woods system:: The U.S. pledged to buy or sell gold at $Us 35 per ounce.Other member countries agreed to a fixed exchange rate betweentheir currency and the U.S. dollarWewill examine these systems further in this chapter's appendix2015PearsonEducation,Inc
© 2015 Pearson Education, Inc. 4 Fixed Exchange Rate System A fixed exchange rate system is one under which countries agree to keep the exchange rates among their currencies fixed for long periods. • From the 19th century until the 1930s, countries’ currencies were redeemable for fixed amounts of gold—a system known as the gold standard. The amount of gold each for which currency was redeemable determined the exchange rates. After the Great Depression of the 1930s, most countries abandoned the gold standard. In 1944, a conference in Bretton Woods, NH established the Bretton Woods system: • The U.S. pledged to buy or sell gold at $US 35 per ounce • Other member countries agreed to a fixed exchange rate between their currency and the U.S. dollar We will examine these systems further in this chapter’s appendix
TheCurrentExchangeRateSystem19.2LEARNINGOBJECTIVEDiscuss thethreekeyfeatures of the currentexchangerate system@2015PearsonEducation,lnc
LEARNING OBJECTIVE © 2015 Pearson Education, Inc. 5 The Current Exchange Rate System 19.2 Discuss the three key features of the current exchange rate system