Chapter TWo The international 2 Monetary System Chapter objective This chapter serves to introduce the student to the institutional framework within which International payments are made The movement of capital is accommodated Exchange rates are determined
INTERNATIONAL FINANCIAL MANAGEMENT EUN / RESNICK Second Edition 2 Chapter Two The International Monetary System Chapter Objective: This chapter serves to introduce the student to the institutional framework within which: •International payments are made. •The movement of capital is accommodated. •Exchange rates are determined
Chapter Two Outline Evolution of the International Monetary System o Current Exchange Rate Arrangements o European monetary system Euro and the european monetary union The mexican peso crisis The asian Currency Crisis o Fixed versus Flexible Exchange rate regimes McGraw-Hilylrwoin 2-1 Copyright@ 2001 by The McGraw-Hill Companies, Inc. All rights
McGraw-Hill/Irwin Copyright © 2001 by The McGraw-Hill Companies, Inc. All rights reserved. 2-1 ⚫ Evolution of the International Monetary System ⚫ Current Exchange Rate Arrangements ⚫ European Monetary System ⚫ Euro and the European Monetary Union ⚫ The Mexican Peso Crisis ⚫ The Asian Currency Crisis ⚫ Fixed versus Flexible Exchange Rate Regimes Chapter Two Outline
Eⅴ olution of the International monetary system o Bimetallism: Before 1875 o Classical Gold Standard: 1875-1914 Interwar period 1915-1944 o Bretton Woods System: 1945-1972 o The Flexible Exchange rate Regime: 1973 Present McGraw-Hilylrwoin 2-2 Copyright@ 2001 by The McGraw-Hill Companies, Inc. All rights
McGraw-Hill/Irwin Copyright © 2001 by The McGraw-Hill Companies, Inc. All rights reserved. 2-2 Evolution of the International Monetary System ⚫ Bimetallism: Before 1875 ⚫ Classical Gold Standard: 1875-1914 ⚫ Interwar Period: 1915-1944 ⚫ Bretton Woods System: 1945-1972 ⚫ The Flexible Exchange Rate Regime: 1973- Present
Bimetallism: Before 1875 o a"double standard"in the sense that both gold and silver were used as money Some countries were on the gold standard, some on the silver standard some on both o Both gold and silver were used as international means of payment and the exchange rates among currencies were determined by either their gold or silver contents e Gresham 's law implied that it would be the least valuable metal that would tend to circulate McGraw-Hilylrwoin 2-3 Copyright@ 2001 by The McGraw-Hill Companies, Inc. All rights
McGraw-Hill/Irwin Copyright © 2001 by The McGraw-Hill Companies, Inc. All rights reserved. 2-3 Bimetallism: Before 1875 ⚫ A “double standard” in the sense that both gold and silver were used as money. ⚫ Some countries were on the gold standard, some on the silver standard, some on both. ⚫ Both gold and silver were used as international means of payment and the exchange rates among currencies were determined by either their gold or silver contents. ⚫ Gresham’s Law implied that it would be the least valuable metal that would tend to circulate
Classical Gold Standard 1875-1914 o During this period in most major countries Gold alone was assured of unrestricted coinage a There was two-way convertibility between gold and national currencies at a stable ratio Gold could be freely exported or imported The exchange rate between two country's currencies would be determined by their relative gold contents McGraw-Hilylrwoin 2 Copyright@ 2001 by The McGraw-Hill Companies, Inc. All rights
McGraw-Hill/Irwin Copyright © 2001 by The McGraw-Hill Companies, Inc. All rights reserved. 2-4 Classical Gold Standard: 1875-1914 ⚫ During this period in most major countries: ◼ Gold alone was assured of unrestricted coinage ◼ There was two-way convertibility between gold and national currencies at a stable ratio. ◼ Gold could be freely exported or imported. ⚫ The exchange rate between two country’s currencies would be determined by their relative gold contents