INTERNATIONAL BUSINESS 1 STUDY GUIDE

Apuntes

INTERNATIONAL BUSINESS – STUDY GUIDE Chapters 11, 12, and 13 CHAPTER 11 – The International Monetary System The International Monetary System A set of rules, institutions, and mechanisms that govern exchange rates, international payments, and capital flows between countries. Exchange Rate Systems Term Definition Example Pegged Exchange Rate A country fixes (ties) its currency to another currency's value. China pegged the Yuan to the USD before 2005. Managed (Dirty) Float Currency generally floats, but the government occasionally intervenes to adjust value by buying or selling currency. Most developing nations. Floating Exchange Rate Currency value is determined solely by supply and demand in the foreign exchange market. U.S. Dollar, Euro, Yen, British Pound. Bretton Woods Conference (1944) Established two key institutions: IMF (International Monetary Fund) World Bank The IMF – Functions Originally created to maintain fixed exchange rates. Works to discourage competitive currency devaluations. Promotes monetary stability and helps prevent inflation. Today countries use: 21%: floating 23%: limited flexibility 43%: tightly fixed / pegged The World Bank – “The R...