CH06 Government Influence On Exchange Rates(国际金融管理,英文版)概要1.pptVIP

Part II Exchange Rate Behavior Government InfluenceOn Exchange Rates Chapter Objectives To describe the exchange rate systems used by various governments; To explain how governments can use direct and indirect intervention to influence exchange rates; and To explain how government intervention in the foreign exchange market can affect economic conditions. Exchange Rate Systems Exchange rate systems can be classified according to the degree to which the rates are controlled by the government. Exchange rate systems normally fall into one of the following categories: fixed freely floating managed float pegged FixedExchange Rate System In a fixed exchange rate system, exchange rates are either held constant or allowed to fluctuate only within very narrow bands. The Bretton Woods era (1944-1971) fixed each currency’s value in terms of gold. The 1971 Smithsonian Agreement which followed merely adjusted the exchange rates and expanded the fluctuation boundaries. The system was still fixed. Online Application Find out more about the Bretton Woods conference and the Smithsonian Agreement at: /origins/confer.html /money.asp FixedExchange Rate System Pros: Work becomes easier for the MNCs. Cons: Governments may revalue their currencies. In fact, the dollar was devalued more than once after the U.S. experienced balance of trade deficits. Cons: Each country may become more vulnerable to the economic conditions in other countries. Freely FloatingExchange Rate System In a freely floating exchange rate system, exchange rates are determined solely by market forces. Pros: Each country may become more insulated against the economic problems in other countries. Pros: Central bank interventions that may affect the economy unfavorably are no longer needed. Freely FloatingExchange Rate System Pros: Governments are not restricted by exchange rate boundaries when setting new policies. Pros: Less capital flow restrictions are needed, thus enhancing the efficiency of the financial mar