EXCHANGE RATES

The exchange rate  A rate which one can be exchanged for another.  The value of another country’s currency  the price which one currency can be bought.

Currencies: the US dollar (US$) the euro (€) the yen(¥) the British pound (£) the kuna (HRK) the dollar vs. 20,000 US dollars The dollar has slipped by around 3% against the yen and the euro since November Economist, March 06

Which of the three rates are described below? FIXED, MANAGED FLOATING or FLOATING E.R.? 1.a rate which is set by the government (central bank) only a rate which is determined by the private market through supply and demand its value will decrease only if demand is low (and vice- versa) it does not change before it is centrally decided if the rate changes more than the central bank allows, the bank intervenes (buys or sells the currency) based on the free market only its value will rise only if demand is high a combination of the other two types example of intervention in the economy

Which of the three rates are described below? FIXED, MANAGED FLOATING or FLOATING E.R.? 1.a rate which is set by the government (central bank) only FIXED (PEGGED) EXCHANGE RATE 2.a rate which is determined by the private market through supply and demand FLOATING E.R. 3.its value will decrease only if demand is low (and vice-versa) FLOATING E.R. 4.it does not change before it is centrally decided FIXED 5.if the rate changes more than the central bank allows, the bank intervenes (buys or sells the currency) MANAGED FLOATING EXCHANGE RATE 6.based on the free maket only FLOATING EXCHANGE RATE 7.its value will rise only if demand is high FLOATING E.R. 8.a combination of the other two types MANAGED FLOATING 9.example of intervention in the economy FIXED E.R., MANAGED FLOAT.

What types of exchange rates are the following sentences likely to belong to?  If a currency is overvalued, it needs to be devalued.  If a currency is undervalued, it needs to be revalued.  A currency appreciates/depreciates against another currency.

Types of exchange rates FIXED EXCHANGE RATE FLOATING EXCHANGE RATE MANAGED FLOATING RATE

Types of exchange rates Bretton-Woods divergence EMS supply & demand freely determined speculation to be pegged against... US dollar intervene reflecting purchasing power parity ERM gold central parity floor and ceiling

Types of exchange rates FIXED EXCHANGE RATE FLOATING EXCHANGE RATE MANAGED FLOATING RATE - Bretton-Woods -gold -to be pegged against - US dollar -supply & demand -reflecting purchasing power parity -speculation -central parity -EMS -floor and ceiling -divergence - Intervene

The period of gold convertibility  The Bretton-Woods Agreement of 1944 established 1 2 rates, defined in terms of gold and the US dollar. Between 1944 and 1971 many currencies were 3 4 the US dollar, i.e. their 5 with the US dolar were fixed. One US dollar was a promissory note issued by the US 6 and could be exchanged for 1/35th of an 7 of gold. Under this system, overvalued currencies could only be adjusted with the agreement of the Such adjustments were called 11 or 12. The Bretton- Woods system of gold 13 and 14 against the dollar was abandoned in 1971, because following inflation, the Federal Reserve did not have enough gold to guarantee the American 15.

Match the words below (1):  pound  market  The United States  The Bretton-Woods  Fixed  Promissory  An ounce of  Overvalued  Gold  depreciating  exchange rate  currency  gold  currency  sterling  Agreement  note  forces  Treasury  convertibility

Match the words below (2):  purchasing power  peg one currency  the European  undervalued  the International  capital  currency  single  fluctuations  currency  Monetary Fund  parity  gain  Monetary System  against another

Match the words below (3):  Exchange Rate  Floating  Selling  Hedge against  Appreciating  Financial  Buying  Stable  Convertible  Currency  currency  price  Currency  Mechanism  Price  exchange rate  currency fluctuations  deregulation

The abolition of exchange controls (C) Figures?  1970s, 1980s  95%  1990s, $300bn  30%

MacKenzie  The period of gold convertibility  Floating exchange rates  The abolition of exchange controls  Intervention and managed floating exchange rates  The power of speculators and the collapse of the EMS  Why many business people would prefer a single currency  The introduction of the single European currency