At wars end seeking stability in the international

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At war’s end, seeking stability in the international monetary and financial systems, 44 countries signed the Bretton Woods agreement. Bretton Woods established a fixed exchange rate system in which the U.S. dollar was pegged to a set value for gold ($35 per ounce), and other major currencies were pegged to the dollar. For nearly 30 years, the system kept exchange rates of major currencies at a fixed level. International Business: The New Realities 5-12
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Breakdown and Legacy of Bretton Woods Bretton Woods dissolved in 1971, as the world economy was evolving and governments could no longer maintain fixed exchange rates on the gold standard. Bretton Woods established the: Concept of international monetary cooperation, especially aimed at minimizing currency risk. International Monetary Fund (IMF) : Agency that promotes exchange rate stability, monitors exchange systems, provides funding to developing economies. World Bank : Agency that provides loans and technical assistance to combat global poverty around the world. 5-13
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The Exchange Rate System Today Today, advanced economy currencies (dollar, euro, pound, yen) float according to market forces, their value determined by supply and demand. Conversely, most developing and emerging economies use fixed exchange rate systems . In fixed regimes, the value of a currency is pegged to the value of another, or to a basket of currencies, at a specified rate. International Business: The New Realities 11-14 Examples ▪ China pegs its currency to a basket of currencies ▪ Belize pegs its currency to the dollar.
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The International Monetary and Financial Systems International monetary system : the institutional framework, rules, and procedures by which national currencies are exchanged for one another. Global financial system : the collection of financial institutions that facilitate and regulate the flows of investment and capital funds worldwide. It includes the national and international banking systems, the international bond market, and national stock markets. 11-15
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Globalization of Financial and Monetary Activities Growing integration of financial and monetary global activity is due to: Evolution of monetary and financial regulations, worldwide. Emergence of new technologies and payment systems in global finance; ex., the Internet Increased global and regional interdependence of financial markets. Growing role of single-currency systems, e.g., euro. International Business: The New Realities 11-16
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Key Participants and Relationships in the Global Monetary and Financial Systems
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Key Participants in the Monetary and Financial Systems The Firm . International transactions require firms to deal with huge sums of foreign exchange.
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