BA 3340 Lecture Notes - Lecture 2: 1979 Energy Crisis, Capital Market, Currency Crisis
Document Summary
Refers to the institutional arrangements that countries adopt to govern exchange rates. Exists when a country allows the foreign exchange market to determine the relative value of a currency. The u. s. dollar, the eu euro, the japanese yen, and the british pound all float freely against each other. Their values are determined by market forces and fluctuate day to day. Exists when a country fixes the value of its currency relative to a reference currency. Imposes monetary discipline and leads to low inflation. Adopting a pegged exchange rate regime can moderate inflationary pressures in a country. Float exists when a country tries to hold the value of its currency within some range of a reference currency such as the u. s. dollar. Exists when countries fix their currencies against each other at some mutually agreed on exchange rate. Refers to a system in which countries peg currencies to gold and guarantee their convertibility.
