Econ310_Notes20101109

Econ310_Notes20101109 - I nternational Financial System...

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International Financial System (11/9/2010) Econ 310-004 Definitions fixed exchange rate – a currency's value is matched to the value of another single currency or to a commodity (e.g., gold) floating exchange rate – a currency's value is allowed to fluctuate to the foreign exchange market managed float (dirty float) – floating ER: but government sometimes intervenes (buying or selling foreign assets to influence exchange rates) gold standard – fixed ER: currencies pegged to gold Bretton Woods – (1944-1971) fixed ER: dollar pegged to gold, other currencies pegged to dollar currency board – fixed ER: domestic currency backed 100% by a foreign currency with a permanent peg dollarization – fixed ER: adoption of a foreign currency as the domestic currency (e.g., the dollar) currency union – fixed ER (inside): countries join together for a common currency, which operates like a fixed regime (dollarization) among member countries and either fixed or floating with rest of the world capital controls
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Econ310_Notes20101109 - I nternational Financial System...

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