Historical Overview of Exchange Rate Regimes
Assignment I
Exchange Rate Regimes:
Historical Overview
Prepared for:
Mrs. Syeda Mahrufa Bashar, Assistant Professor
Course Instructor: International Finance
Course Code: F405
Prepared by:
Tanvir Ahmed Khan Tanu (ZR-06)
Rifat Tareq (ZR-20)
Makshudul Alom Mokul Mondal (ZR-43)
Hammad Bin Noor (ZR-49)
Ishmam Rahman Abedin (ZR-53)
Institute of Business Administration (IBA)
University of Dhaka
September 11, 2013
Table of Contents
1 Exchange Rate Regime
An exchange-rate regime is the way an authority manages its currency in relation to other currencies and the foreign exchange market .Thus, it is basically the foreign exchange policy of a country or a trading block (such as European Union).
There are currently three basic types of exchange rate regimes –
Floating Exchange Rate (the market dictates movements in the exchange rate)
Pegged Float (where a central bank keeps the rate from deviating too far from a target band or value)
Fixed Exchange Rate (ties the currency to another currency (US dollar, euro) or a basket of currencies).
2 Historical Overview of Exchange Rate Regimes
2.1 Classical Gold Standard (Pre 1914)
In the 19th and early 20th centuries gold played a key role in international monetary transactions. The gold standard was used to back currencies; the international value of currency was determined by its fixed relationship to gold; gold was used to settle international accounts. The gold standard maintained fixed exchange rates that were seen as desirable because they reduced the risk when trading with other countries. Imbalances in international trade were theoretically rectified automatically by the gold standard. A country with a deficit would have depleted gold reserves and would thus have to reduce its money supply. The resulting fall in demand would reduce imports and the lowering of prices would boost exports; thus the deficit would be rectified. Any country experiencing inflation
Exchange Rate Regimes:
Historical Overview
Prepared for:
Mrs. Syeda Mahrufa Bashar, Assistant Professor
Course Instructor: International Finance
Course Code: F405
Prepared by:
Tanvir Ahmed Khan Tanu (ZR-06)
Rifat Tareq (ZR-20)
Makshudul Alom Mokul Mondal (ZR-43)
Hammad Bin Noor (ZR-49)
Ishmam Rahman Abedin (ZR-53)
Institute of Business Administration (IBA)
University of Dhaka
September 11, 2013
Table of Contents
1 Exchange Rate Regime
An exchange-rate regime is the way an authority manages its currency in relation to other currencies and the foreign exchange market .Thus, it is basically the foreign exchange policy of a country or a trading block (such as European Union).
There are currently three basic types of exchange rate regimes –
Floating Exchange Rate (the market dictates movements in the exchange rate)
Pegged Float (where a central bank keeps the rate from deviating too far from a target band or value)
Fixed Exchange Rate (ties the currency to another currency (US dollar, euro) or a basket of currencies).
2 Historical Overview of Exchange Rate Regimes
2.1 Classical Gold Standard (Pre 1914)
In the 19th and early 20th centuries gold played a key role in international monetary transactions. The gold standard was used to back currencies; the international value of currency was determined by its fixed relationship to gold; gold was used to settle international accounts. The gold standard maintained fixed exchange rates that were seen as desirable because they reduced the risk when trading with other countries. Imbalances in international trade were theoretically rectified automatically by the gold standard. A country with a deficit would have depleted gold reserves and would thus have to reduce its money supply. The resulting fall in demand would reduce imports and the lowering of prices would boost exports; thus the deficit would be rectified. Any country experiencing inflation
Cited: Altius Directory, 2013. www.altiusdirectory.com. [Online] Available at: http://www.altiusdirectory.com/Finance/exchange-rate-regime.php Barry, E., 1992. Golden Fetters: The Gold Standard and the Great Depression. s.l.:s.n. Investopedia, 2013. http://www.investopedia.com/terms/f/floatingexchangerate.asp. [Online] Available at: http://www.investopedia.com/terms/f/floatingexchangerate.asp Investopedia, 2013. www.investopedia.com. [Online] Available at: http://www.investopedia.com/terms/b/brettonwoodsagreement.asp Investopedia, 2013. www.investopedia.com/terms/g/goldstandard. [Online] Available at: www.investopedia.com/terms/g/goldstandard.asp Wikimedia Commons, 2013. en.wikipedia.org/wiki/Economic_and_Monetary_Union_of_the_European_Union. [Online] Available at: http://en.wikipedia.org/wiki/Economic_and_Monetary_Union_of_the_European_Union Wikimedia Commons, 2013. http://en.wikipedia.org/. [Online] Available at: http://en.wikipedia.org/wiki/Exchange_rate_regime Wikimedia Commons, 2013. www.wikipedia.com/Bretton_Woods_System. [Online] Available at: http://en.wikipedia.org/wiki/Bretton_Woods_system Wikimedia Commons, 2013. www.wikipedia.org/wiki/Floating_exchange_rate. [Online] Available at: www.wikipedia.org/wiki/Floating_exchange_rate World Gold Council, 2013. www.gold.org. [Online] Available at: http://www.gold.org/government_affairs/gold_as_a_monetary_asset/role_in_international_monetary_system/the_classical_gold_standard/