1. EXCHANGE RATES

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

3. Currencies: the US dollar (US$) the euro (€) the yen(¥)
the renminbi (yuan – units!)
the British pound (£)
the kuna (HRK)
the dollar vs. 20,000 US dollars The British pound slipped by around 3.5% against the dollar and held steady against the euro in November.

4. Which of the three rates are described below
Which of the three rates are described below? FIXED, MANAGED FLOATING or FLOATING E.R.?
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
Based on:

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

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

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

8. reflecting purchasing
Which types of exchange rates are the concepts below primarily related to? Fill in the chart (see Slide 7 and MK: pp ).
to be pegged against...
gold convertibility
speculation
IMF
The Fed
central banks
supply & demand
intervene
freely
determined
US dollar
M.Friedman
reflecting purchasing
power parity

9. BRETTON WOODS MONETARY CONFERENCE ’In 1944 the US government chose the Mount Washington Hotel as the site of a gathering of 44 countries. This was to be the famed Bretton Woods Monetary Conference. The Conference established the World Bank, set the gold standard at $35.00 an ounce, and chose the American dollar as the backbone of international exchange. The meeting provided the world with a badly needed post-war currency stability.’

10. Pg. 1: The period of gold convertibility (MK: p.128)
After World War II, an agreement established 1 2 rates, defined in terms of gold and the US dollar. Many currencies were 3 4 the US dollar, and the dollar was 5 against gold. One US dollar could be 6 for 1/35th of an 7 of gold. Under this system, 8 exchange rates could only be adjusted with the agreement of the Such adjustments were called 11 or 12. The system of gold 13 and 14 against the dollar was abandoned in 1971 because 15 did not have enough gold to guarantee its currency.

11. OPTIONAL READING What happened after the period of gold covertibility
OPTIONAL READING What happened after the period of gold covertibility? (See the IMF website)
1. Cooperation and reconstruction (1944–71)
2. The end of the Bretton Woods System (1972–81) (video clip: President Richard Nixon announcing the ‘temporary suspension of gold convertibility’ in 1971)
3. Debt and painful reforms (1982–89)
4. Societal Change for Eastern Europe and Asian Upheaval ( )
5. Globalization and the Crisis ( present)

12. Underlying economic conditions, economic realities Underestimate
Pg. 2 (MK, p.128)
Retell the main ideas of the paragraph using the words below.
Supply & demand
Proponent
Argue
Underlying economic conditions, economic realities
Underestimate

13. Pg.3 (MK, p.129) Find the meaning of the prompts below. PPP? 5%? 95%?
Reasons for currency transactions?

14. Match the words below: appreciating/depreciating currency
purchasing power
fixed/floating/managed
devalued/revalued
common
hedge
raw
gold
futures
central bank
speculative
fluctuations
contracts
currency
exchange rate
intervention
materials
transactions
against fluctuations
convertibility
parity

15. How to fight against currency fluctuations and speculation. Study pgs
How to fight against currency fluctuations and speculation? Study pgs.4 & 5 and use the red words to answer the question.
appreciating/depreciating
currency
purchasing power
fixed/floating/managed
devalued/revalued
common
hedge
raw
gold
futures
central bank
speculative
fluctuations
contracts
currency
exchange rate
intervention
materials
transactions
against fluctuations
convertibility
parity

16. Revision MK: pp
What was fixed in the fixed exchange rate system after WW II?
What was Milton Friedman’s view of the exchange rates?
Why was the euro introduced? (pg.4)
To what extent is the managed floating rate a solution to currency fluctuations? (pg.5)

17. Revision MK: pp
Which pgs. deal with specific types of exchange rates?
Find parts of the text that deal with the floating rate in terms of the following:
a) theoretical expectations
b) reality
c) attempts to resolve problems

18. OPTIONAL EX. A currency transaction tax (CTT)
A CTT would be collected from dealers in international 1... markets, by financial clearing and settlement systems. The 2... was designed to slow down across borders, to make monetary more effective, and to prevent or manage exchange rate The CTT is not designed to change FX market behaviour, but only to raise money without 6... the market. But of course taxing FX transactions would increase the spread (difference between the 7... and the 8... prices at which trades would be profitable, and so would reduce the number of transactions. The proposed tax 9… is … . Such a CTT on all major currencies would an annual of over $33bn. Governments should think how to spend the of this tax. (MK: p.130)

19. OPTIONAL EX. Tobin Tax vs. CTT
A proposal has been made to …
The idea behind … is to …
The CTT, on the contrary, is not designed to …, but only to …