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
