...The Foreign Exchange Market Before the times of the foreign exchange market, the world depended on the gold standard to determine the value of goods and services. This paper will describe in more detail the gold standard, the positive and negative aspects of using the gold standard and in addition the paper will summarize the major functions of the world’s major foreign exchange markets. The gold standard was a monetary system that many countries used in order to determine the value of domestic currencies in relation to a specific amount of gold. The value of money, bank deposit and notes were transformed into gold at the specific amount. Britain was the first country to adopt the gold standard in 1816, followed by the United States. From 1834 until 1933 the specified price of gold in the United States was $20.67 per ounce (Bordo, 2002). However, in 1933 U.S. President Franklin D. Roosevelt put an end to the gold standard when he prohibited the possession of gold by any persons except for the purposes of owning or manufacturing jewelry (Moffatt, 2008). This was the beginning of the Bretton Woods System. Under the Bretton Woods System, countries agreed to settle their international balances by converting deficits into U.S. dollars at a flat exchange rate of $35 per ounce (Bordo, 2002). This monetary system only lasted until 1971 when President Richard Nixon completely ended the trading of gold (Moffatt, 2008). Since that time the gold standard has not been used by any major...
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...Disequilibrium Balance of Payments Adjustments Direct Measures to correct BOP Problems of Exchange Control Exchange Control Currencies become inconvertible Foreign trade restricted Creates a multiple exchange rate system Creates Conditions for Bilateral Trade Agreements Foreign Exchange Rate Structure of Foreign Exchange Market Functions of Foreign Exchange Market (i) Transferring foreign currency from one country to another where it is needed in the settlement of payments; (ii) Providing short-term credit to the importers, and, thereby, facilitating smooth flow of goods and services between the countries; and (iii) Stabilizing the foreign exchange rate by spot and forward market; sale and purchase of foreign currencies. Kind of Foreign Exchange Market Spot Market: The spot market refers to that segment of the foreign exchange market in which Sale and purchase of foreign currency are settled within two days of the deal. The spot sale and Purchase of foreign exchange make the spot market. The rate at which foreign currency is bought and sold in the spot market is called spot exchange rate Forward Market: The forward exchange market refers to the deals for sale and purchase of a foreign currency at some future date at a presettled exchange rate. When buyers and sellers enter an agreement to buy and sell a foreign currency after 90 days of the deal, it is called forward transaction Nature of Foreign Exchange Transactions • . The nature and purpose...
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...Most of the countries tried to reestablish the gold standard after World War I, but it had been totally collapsed during the Great Depression in 1930s. Some economists said comply with the gold standard had prohibited monetary authorities from increasing the money supply rapidly enough to recover the economies. Therefore, the representatives of most of the world's leading nations met at Bretton Woods, New Hampshire, in 1944 to create a new international monetary system. The representatives had decided to link the world currencies to the dollar since the United States accounted for over half of the world's manufacturing capacity and held most of the world's gold during that time. At the final, they agreed should be convertible into gold at $35 per ounce. What is Bretton Woods System? The Bretton Woods system is often refer to the international monetary regime that prevailed from the end of World War II until 1971. The origin of the name is from the site of the 1944 conference that had created the International Monetary Fund (IMF) and World Bank. According to the history, the Bretton Woods system was the first example of a fully negotiated monetary order intended to govern currency relations among sovereign states. In principle, the regime was designed to combine binding legal obligations with multilateral decision-making conducted through an international organization -- the IMF, endowed with limited supranational authority. In practice the initial scheme, as well as its subsequent...
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...The Bretton Woods Agreement After World War I most countries wanted to return to the old financial security and stable situation of pre-war times as soon as possible. Discussions about a return to the gold standard began and by 1926 and all leading economies had re-established the system, according to which every nation’s circulating money had to be backed by reserves of gold and foreign currencies to a certain extent. But several mistakes in implementing the gold standard (mainly that a weakened Great Britain had to take the leading part and that a number of main currencies where over- or undervalued) led to a collapse of the economic and financial relations, peaking in the Great Depression in 1929. Every single country tried to increase the competitiveness of its export products in order to reduce its payment balance deficit by deflating its currency. This strategy only led to success as long as a country was deflating faster and more strongly than all other nations. This fact resulted in an international deflation competition that caused mass unemployment, bankruptcy of enterprises, the failing of credit institutions, as well as hyper inflations in the countries concerned. In the 1930s several conferences dealing with the world monetary problems caused by the Great Depression had ended in failure. But after World War II the need for a stabilizing system that avoided the mistakes, which had been made earlier, became evident. Plans were made for an innovative...
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...their government supply money to the economy. Sometimes these money systems are based on commodities like gold or silver, in which paper notes may be presented and then converted for the element on demand. Another money system is a fiat system where the government or a central bank defines the value of the money. No matter what system another country is on, there are influences and obstacles that must be comprehended in order to master a foreign monetary system. The British system is one that is much like ours, yet it has existed a lot longer, and is just as complex. The core focus of this investigation is to learn the history of Britain’s monetary system, scrutinize its major components and significant influences, learn about its financial organizations, and reveal incidents that helped form its current system. The history of Britain’s monetary system stretches back through the centuries. In the 1640’s many people wanted to keep their gold safe, so they entrusted their wealth to goldsmiths. In exchange for the gold, people would receive “promissory notes” which entitled the bearer to the full amount in gold. This was far easier to carry around than heavy bags of coins, and they became very popular and were soon used as currency. When the goldsmiths realized that almost no one was redeeming their notes for gold, they started to issue more notes than the gold they had to back them, thereby creating money. This creation of money went on for a few decades with no one...
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...The exchange rate An exchange rate is the rate at which one currency is exchanged on another one. This rate differs from country to country and depends on many economical variables, the main of which are the general balance and disbalance of economy, monetary and fiscal policy, the state of the budget, international policy, the condition and development of the country’s economy compared to the world situation and dominating countries, purchasing power of the currency, and other internal and external factors. The history of world exchange rate systems shows us that the world community (in its majority) has in fact shifted from the system of fixed exchange rates to floating exchange rate system. Currently there exist different combinations of floating and fixed exchange rate systems, together with specific economical instruments, created for exchange rate regulating. Since the development of production and a number of divisions of labor there existed such a phenomenon as commodity money. There was no other monetary system until 17th century when there appeared coins having an intrinsic value, not linked with commodity. Usually the value of the coin was associated with the content of gold in the coin. The exchange rate between different coins and different currencies depended on the content of gold in the coin as well, and equaled to the relative content of gold in the coins. In 17th century banks started issuing own banknotes which had the same purchasing power as...
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...Gold Standard By phil42 | Studymode.com With the Gold Standard, the US economy would print currency that equaled a specific value of gold. Meaning, you could cash in your money for a specified amount of gold because a unit of currency = a specific amount of gold. The limitations to Governments was that they could not spend what they wanted because the amount of currency in circulation had to correspond to the amount of gold in reserve. Nixon, eliminated the Gold Standard, I think during the Vietnam war. As a result, the currency in circulation today does not have to be backed up by anything, not gold, not anything. That's why we see trillion dollar deficits today. Politicians can spend what they want regardless of the real economic downfalls that eventually have to be dealt with. Nowadays, on a side note, our US debt is fianced by foreign governments such as the Chinese and others. This means most of debt the US government owns is owed to foreign investers. The answer to whether having Gold Standard is good or not is based on who you ask. Economists will have one answer, politicians will have another. The phrase “gold standard” is defined as the use of gold as the standard value for the money of a country. If a country will redeem any of its money in gold it is said to be using the gold standard. The U.S. and many other Western countries adhered to the gold standard during the early 1900’s. Today, however, gold’s role in the worldwide monetary system is negligible....
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...JOHN A. ARCILLA AB – Economics 1 DR. YOLANDA T. TARIMAN PROFESSOR - ENGLISH II FEBRUARY 8, 2013 TABLE OF CONTENTS CONTENTS PAGE PRELIMINARY PAGE Title Page Table of Contents Outline CHAPTERS 1 Introduction Overview of the Topic 2 Discussion 3 Conclusion BIBLIOGPAPHY CURRICULUM VITAE ii INTERNATIONAL BANKING: HISTORICAL SYNTHESIS OF THE BASIC PROBLEMS AND DEVELOPMENTS OF THE MONETARY AND CREDIT SYSTEMS DURING THE 19th AND 20th CENTURIES Thesis Statement: Our historical synthesis focuses on the economic and political aspects of banking, with questions of industrial management and the credit economy taking second place. OUTLINE I CURRENCY AND MONETARY HISTORY IN THE 19th CENTURY 1 From Silver and Bimetal Currency to Gold Standard 2 The Development of the Bank Note into a Legal Tender A Bank Notes and Issuing Banks in England until Mid-19th Century B Peel’s Bank Charter Act C The Banque de France in the 19th Century D Overcoming the Federal System of German Issuing Banks E The United States’ Arduous Journey Towards the Federal System II BANKS AND BANKING FROM THE EARLY PHASE OF INDUSTRIALIZATION TO THE MIDDLE OF THE 19th CENTURY iii 1 Bank Types at the Beginning of the 19th Century A Private Bankers B Public Banks C State Banks 2 The State Loan Business and the Political Role of Private Bankers 3 The Financing of Railway Construction 4 The Financing of Early Industry 5 The International Financing...
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...Foreign Exchange Market Demond McKeever National University In view of the fact that the international business environment is not set up with a worldwide medium for exchange, the foreign exchange market is a necessity for international trade. The major functions of the foreign exchange market are to transfer purchasing power, allocate open trade for international markets, monitor exchange rates from fluctuating to rigorously, and to aid in the import and export of goods between countries by providing credit for financing international trade (Suranovic, 2005) The foreign exchange market or forex market as it is often called is the market in which currencies are traded. Currency Trading is the world’s largest market consisting of almost trillion in daily volume and as investors learn more and become more interested, the market continues to rapidly grow. Not only is the forex market the largest market in the world, but it is also the most liquid, differentiating it from the other markets. In addition, there is no central marketplace for the exchange of currency, but instead the trading is conducted over-the-counter. Unlike the stock market, this decentralization of the market allows traders to choose from a number of different dealers to make trades with and allows for comparison of prices. Typically, the larger a dealer is the better access they have to pricing at the largest banks in the world, and are able to...
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...order of the chapter outline: Evolution of the International Monetary System The Current Exchange Rate Arrangements European Monetary System The Euro and the European Monetary Union The Mexican Peso Crisis The Asian Currency Crisis The Argentine Peso Crisis Fixed versus Flexible Exchange Rate Regimes Evolution of the International Monetary System 1. The international monetary system can be defined as the institutional framework within which a) international payments are made. b) movement of capital is accommodated. c) exchange rates among currencies are determined. d) all of the above Answer: d) 2. Corporations today are operating in an environment in which exchange rate changes may adversely affect their competitive positions in the marketplace. This situation, in turn, makes it necessary for many firms to a) carefully manage their exchange risk exposure. b) carefully measure their exchange risk exposure. c) both a) and b) Answer: c) 3. The international monetary system went through several distinct stages of evolution. These stages are summarized, in alphabetic order, as follows: (i)- Bimetallism (ii)- Bretton Woods system (iii)- Classical gold standard (iv)- Flexible exchange rate regime (v)- Interwar period The chronological order that they actually occurred is: a) (iii), (i), (iv), (ii), and (v) b) (i), (iii), (v), (ii), and (iv) c)...
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...and Science of the Republic Of Kazakhstan Ryskulov’s Kazakh Economic University Faculty of “International Educational Programs” Course Work on finance discipline Monetary system of the Republic of Kazakhstan Prepared by: Sayakova Aierke group 242 Scientific advisor: MBA, Ph.D. Candidate Bazarbekova Alma Damerovna Almaty 2011 Content 1. Introduction 2. Theories of money 3. Evolution of money 3.1. Kinds of modern money 3.2 Analysis of structure of monetary weight of Republic Kazakhstan on 2010. 3.3. Money in the world countries 4. Conclusion 1. Introduction Money is the major attribute of market economy. The monetary system functions, stability of economic development of the country in many respects depends. Studying of the nature and the basic functions of money, process of evolution of monetary systems, the organisations and developments of monetary circulation, the reasons, consequences and methods of struggle against inflation is necessary for the subsequent analysis of features of functioning of all financial system. Businessmen in the economic activities constantly deal with monetary units of the country and the foreign states. Money - the historical category inherent in commodity manufacture. Before occurrence of money barter took place. The goods which were used daily concern the most ancient kinds of money, and at an...
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...INTRODUCTION: FOREX — the foreign exchange market or currency market or Forex is the market where one currency is traded for another. It is one of the largest markets in the world. Some of the participants in this market are simply seeking to exchange a foreign currency for their own, like multinational corporations which must pay wages and other expenses in different nations than they sell products in. However, a large part of the market is made up of currency traders, who speculate on movements in exchange rates, much like others would speculate on movements of stock prices. Currency traders try to take advantage of even small fluctuations in exchange rates. In the foreign exchange market there is little or no 'inside information'. Exchange rate fluctuations are usually caused by actual monetary flows as well as anticipations on global macroeconomic conditions. Significant news is released publicly so, at least in theory, everyone in the world receives the same news at the same time. Currencies are traded against one another. Each pair of currencies thus constitutes an individual product and is traditionally noted XXX/YYY, where YYY is the ISO 4217 international three-letter code of the currency into which the price of one unit of XXX currency is expressed. For example, INR/USD is the price of the Indian rupees expressed in US dollars, as in Rs 1 = 0.0015 $. Foreign exchange reserves usually stores foreign currency and bonds held by the central banks of nations...
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...recession by lowering interest rates. Contractionary Monetary Policy: Contractionary policy decreases the total money supply. and involves raising interest rates in order to combat inflation. Introduction: Monetary policy rests on the relationship between the rates of interest in an economy, that is the price at which money can be borrowed, and the total supply of money. Monetary policy uses a variety of tools to control one or both of these, to influence outcomes like economic growth, inflation, exchange rates with other currencies and unemployment. Where currency is under a monopoly of issuance, or where there is a regulated system of issuing currency through banks which are tied to a central bank, the monetary authority has the ability to alter the money supply and thus influence the interest rate (in order to achieve policy goals). The beginning of monetary policy as such comes from the late 19th century, where it was used to maintain the gold standard. A policy is referred to as contractionary if it reduces the size of the money supply or raises the interest rate. An expansionary policy increases the size of the money supply, or decreases the interest rate. Furthermore, monetary policies are described as follows: accommodative, if the interest rate set by the central monetary authority...
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...Of Management Lucknow August 2013 A MICROECONOMIC STUDY ON GOLD Submitted to Professor Sanjay K Singh By Section E, Group J Aman Doharey (PGP30244) Mahesh Raja R (ABM11045) Prerna Pal (PGP30265) Rohit Mandappalli (PGP29341) Shradhha MeryllinePanna (PGP30280) Swagata Das Chowdhury (PGP30419) Tanuj Kumar Lodhi (PGP30420) Table of Contents Introduction Background Protection Requirement Elasticity Of Gold Gold Consumption Scenario in India Need and Objective Of Study Research Methodology Tools and Techniques Hypotheses Data Analysis 1. US Dollar 2. Crude Oil 3. Silver 4. Inflation 5. Sensex Values Findings and Conclusions INTRODUCTION This report emphasizes on studying, interpreting and illustrating the various economic factors affecting the consumption and price of the precious metal Gold. We examine the impact of factors that maybe reason for such distortion and also see how the change in gold price impacts other commodities in the open market. Background Used as a sovereign since ages, gold has always been a sought after commodity. The price variation has almost always been upwards and has had a steep rise in this trend. A few pointers about Gold can be inferred as below. Production Gold is majorly obtained through mining, other sources may include recycling, trading etc. Through these sources gold enters the market. Requirement Gold is an essential commodity in any country’s economic state. It is...
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...Evolution of IMS, Beginning of Bretton Woods and Ending, Dirty | |floats, Current situation and Reformed Monetary system | | | |WINNIE PAUL NDOSA (2011178102) | |12/24/2013 | Introduction The year 1252 marked the minting of the very first gold coin in Western Europe since Roman times. Since this landmark, the international monetary system has evolved and transformed itself into the modern system that we use today. The modern system has its roots beginning in the 19th century. In this thesis I explore three main ideas related to this history. First is the evolution of the international monetary system. Within this I will explore the different eras that make up this time. First is the classic gold standard, then the interwar period, and followed by Bretton Woods. This section concludes with a discussion...
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