国际投资学第三章.pptVIP

Chapter 3 Foreign Exchange Determination Introduction In this chapter we discuss: the evolution of international monetary arrangements the empirical evidence on parity relations International Monetary Arrangements The international monetary system evolved through three stages: Gold standard Pegged exchange rate Freely floating exchange rates The current situation is one of floating exchange rates and in some parts of the world, a pegged exchange rate. Gold Standard After the mid-19th century, most countries decided that their currency would be exchangeable into gold bullion at a fixed parity. To maintain equilibrium in the system, gold bullion was used to settle international transactions. The Price-Specie-Flow Mechanism The most important powerful automatic mechanism that contributes to the simultaneous achievement of balance of payments equilibrium by all countries The flows of gold accompanying deficits and surpluses cause price changes that reduce current account imbalances and return all countries to external balance. One problem with this system was that the world money supply could grow only at the rate of new mining. Another major problem was that national economic policies were totally subordinated to the fixed exchange rate objective. Pegged Exchange Rates In 1944, the Bretton Woods agreement created the IMF and a system of pegged exchange rates. The objective was to create a stable system in which countries would have more autonomy in setting their own domestic policies. Pegged Exchange Rates Also called the gold exchange standard, this system was distinguished by two characteristics: an enlargement of international reserves the design of stable but adjustable exchange rates. A fixed exchange rate, defended by central banks, offered great profit opportunities for speculation. The Current Situation: Floating and Pegged Exchange Rates Under the floating exchange rate system, the price of each currency is freely determined by market forces. Exchange ra