International Monetary Relations

International Monetary Relations - International Monetary...

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International Monetary Relations Money Social functions, subject to political influence Social role of money o Medium of exchange o Store of value o Unit of account Policies that affect the stability, value, and role of money o Domestic political conflict o Country’s interaction with global economy o Country’s interaction with international institutions Choice of Currency Policies Exchange rate regime o Floating rate Global market sets the price of money relative to other monies Supply and demand o Pegged Fixed rate Government promises to hold the value of its money stable to another currency or gold Brenton woods o Replacement Replace the currency with a foreign one Euro Value of the currency o Undervalued currencies attract foreign investment o Help a country to export Currency values may drop: o The central bank lowers the national interest rate o Country’s current account (trade and investment) decrease Revaluations o Higher value
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International Monetary Relations - International Monetary...

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