TAILIEUCHUNG - Lecture Global business today (8/e): Chapter 11 - Charles W.L. Hill

Chapter 11 - The international monetary system. In this chapter, students will be able to understand: Describe the historical development of the modern global monetary system, explain the role played by the World Bank and the IMF in the international monetary system, compare and contrast the differences between a fixed and a floating exchange rate system,. | Global Business Today 8e by Charles . Hill Chapter 11 The International Monetary System Introduction Question: What is the international monetary system? The international monetary system refers to the institutional arrangements that govern exchange rates Floating exchange rate system Dirty float Fixed exchange rate system Pegged exchange rate system Multimedia Lecture Support Package to Accompany Basic Marketing Lecture Script 6- Introduction In a floating exchange rate system the foreign exchange market determines the relative value of a currency In a dirty float the value of a currency is determined by market forces, but with central bank intervention if it depreciates too rapidly against an important reference currency In a fixed exchange rate system currencies are fixed against each other at a mutually agreed upon value In a pegged exchange rate system the value of a currency is fixed to a reference country and then the exchange rate between that currency and other currencies is determined by the reference currency exchange rate The Gold Standard Question: What is the gold standard? The gold standard refers to the practice of pegging currencies to gold and guaranteeing convertibility Dates back to ancient times when gold coins were a medium of exchange, unit of account, and store of value The exchange rate between currencies was based on the gold par value - the amount of a currency needed to purchase one ounce of gold The key strength of the gold standard was its powerful mechanism for simultaneously achieving balance-of-trade equilibrium by all countries The Gold Standard Question: When did the gold standard end? The gold standard worked fairly well from the 1870s until the start of World War I After the war, in an effort to encourage exports and domestic employment, countries started regularly devaluing their currencies Confidence in the system fell, and people began to demand gold for their currency putting pressure on countries' gold reserves, and

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