MGMT 425 CH 10 ~final

What is the Bretton Woods Agreement?

Agreement (1944) among nations to create a new international monetary system based on the value of the U.S dollar

What was the Smithsonian Agreement?

Agreement (1971) among IMF members to restructure and strengthen the international monetary system created at Bretton Woods

What is the Jamaica Agreement?

Agreement (1976) among IMF members to formalize the existing system of floating exchange rates as the new international monetary system

What is today's international monetary system like?

a managed float system, where most nations' currencies float against one another and governments engage in limited intervention to realign exchange rates

What are the accounts found in the balance of payment?

trade account | current account, capital account official reserves account

What were the advantages to the gold standard?

-reduced the risk in exchange rates -imposed strict monetary policies -help correct a nation's trade imbalance

What is a special drawing right (SDR)?

IMF asset whose value is based on a "weighted basket" of four currencies, including the US dollar, Euro, Japanese yen, and British pound

What is the International Monetary Fund (IMF)?

agency for regulating the fixed exchange rates and enforce the rules of the international monetary system

What is a balance of payment?

an accounting record of all monetary transactions between a country and the rest of the world

What is statistical discrepancy?

an adjustment for all errors and omissions in the measurement and reporting of international monetary transactions

When is there a credit?

any money in

when is there a debit?

any money out

What is the international monetary system?

collection of agreements and institutions that govern exchange rates

What is the formula for the balance of payment?

current account + capital account + official reserves account + statistical discrepancy = 0

What is the gold standard?

end of WW1, 1918. international monetary system in which nations link the value of their paper currencies to specific values of gold each currency unit = x weight of gold

What provisions did the Jamaica Agreement contain?

endorsed a managed float system gold was no longer the primary reserve asset of the IMF

What is a managed float system?

exchange rate system in which currencies float against one another, with governments intervening to stabilize their currencies at particular target exchange rates

What is a free float system?

exchange rate system in which currencies float freely against one another, without governments intervening in currency markets

What are the important features of the Bretton Woods Agreement?

fixed exchange rates, built-in flexibility, world bank, international monetary fund

When is there a surplus?

if credits>debits

When is there a deficit?

if debit>credits

What is the official reserves account?

records changes in holdings of gold and foreign currencies by the central bank

What is a trade account?

records flows of goods (important for international business)

What is a current account?

records flows of goods, services, and transfers

What is a capital account?

records flows of investments (both private and public) and lending activities

What is a fixed exchange-rate system?

system in which the exchange rate for converting one currency into another is fixed by international agreement