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IMF - The International Monetary System Learning Objectives...

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1 The International Monetary System Learning Objectives Understanding the “gold standard” Understanding the founding goals of the IMF Understanding the Pros & cons of “fixed exchange rates” Understanding the mechanics of BOP Understanding why the “gold standard” died Understanding the contemporary role of the IMF and the system of SDRs Gold (A u ) Gold is a commodity P of a commodity = ƒ If currency values are tied to gold: all currencies have a common value base therefore, all currency values rise and fall together therefore, exchange rates can be “fixed” • “fixed” rates are desirable (S,D) Where do you start? 1. First you have to set the “price” of every currency in gold 2. Next you have to set the “price” of gold 3. Whoops! In what currency? (gold has a different “price” in every different currency) 4. If you can figure this out, you have the structure for a currency exchange rate system
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2 The IMF & The “Gold Standard” Gold Standard — 1 oz. gold = US$ 35.00
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