IB 150 Lecture Notes - Lecture 16: Devaluation, Public Float, Capital Market
31 May 2017
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Document Summary
The international monetary system refers to the institutional arrangements that govern exchange rates. Floating exchange rates occur when the foreign exchange market determines the relative value of a currency. The world"s four major currencies dollar, euro, yen, and pound are all free to float against each other. Fixed exchange rate occurs when a set of currencies are fixed against each other at some mutually agreed upon exchange rate. Pegged exchange rates occur when the value of a currency is fixed relative to a reference currency. Dirty float occurs when countries hold the value of their currency within a range of a reference currency. Pegged exchange rates, dirty floats and fixed exchange rates all require some degree of government intervention. Under this regime, countries pegged their currencies to gold, and guaranteed to exchange a particular quantity of money for an ounce (or grain) of gold. By 1880 most countries were on the gold standard.
