Chapter 11 Flashcards
(19 cards)
What does IMS stand for?
International Monetary System
What does IMS do?
Governs exchange rates
What does the Foreign Exchange Market do?
Determines exchange rates
What is the floating exchange rate system?
Where the foreign exchange market determines the relative value of a currency
What is a pegged exchange rate system?
When the value of a currency is fixed to a reference country and then the exchange rate between that country and another is based on that fixed reference
What is a managed float/dirty float system?
The value of the currency is determined by market flow but the central bank intervenes if depreciation occurs too rapidly.
What is the fixed exchange rate system?
Countries fix their currencies against each other at a mutually agreed upon value
What is dollarization?
When a country abandons its own currency and adopts another. (Typically the USD)
What is the gold standard?
The practice of pegging currencies to gold and guaranteeing convertibility
What does gold par value mean?
The amount of currency needed to purchase one ounce of gold.
What is a balance of trade equilibrium?
When the value of imports equals that of exports
What was the goal of Bretton Woods?
To build an enduring economic order that would facilitate postwar economic growth
What two establishments were created due to Bretton Woods?
The IMF and the World Bank
What did Bretton Woods do?
Made the US dollar the only convertible currency to gold, and other countries would set their rates according to the dollar
Why did Bretton Woods fail?
During the Vietnam War, the US increased its money supply, inflating its dollar. This forced other countries to increased their value. The US had a high trade deficeit.
What did the Jamaica Agreement do?
Declared floating rates acceptable and abandoned gold as a reserve asset
What trends have exchange rates taken since 1973?
They have become volatile and less predicatable
What is a currency board?
A country’s commitment to converting its domestic currency on demand into another currency. Reserves foreign currency equal at the fixed rate.
