International Money and Business summary [Distinction] Questions and Answers 2023

International Monetary System - -The institutional arrangements that countries adopt to govern exchange rates -Floating Exchange Rate System - -A country allows the foreign exchange market to determine the relative value of a currency -Intermediate/Dirty/Managed Float - -A country tries to hold the value of its currency within some range of a reference currency such as the U.S. dollar -Pegged Exchange Rate System - -A country fixes the value of its currency relative to a reference currency -Fixed Exchange Rate System - -Exists when countries fix their currencies against each other at some mutually agreed on exchange rate -Four Components of Bretton Woods - -1. a fixed exchange rate system was established 2. all currencies were fixed to gold, but only the U.S. dollar was directly convertible to gold 3. Devaluations could not to be used for competitive purposes 4. A country could not devalue its currency by more than 10% without IMF approval -What two multinational monetary institutions did Bretton Woods Establish? - -1. IMF 2. World Bank -Purpose of the IMF - -Maintain order in the international monetary system through a combination of discipline and flexibility