floating exchange rate system - -when a country allows the foreign exchange market to determine the relative value of currency (US, Euro)

-pegged exchange rate - -exists when a country fixes the value of its currency relative to a reference currency

-dirty float - -exists when a country tries to hold the value of its currency within some range of a reference currency such as the U.S. dollar (china)

-Gold standard - -gold standard refers to a system in which countries peg currency to gold and guarantee their convertability

-gold par value - -refers to the amount of a currency needed to purchase one ounce of gold

-Strength of gold standard - -it contained a powerful mechanism for achieving balance of trade equilibrium...When the income of a country's residents earn from its exports is equal to the money its residents pay for imports (review example on Evernote)

-Bretton Woods System - --all currencies were fixed to gold, but only the U.S. dollar was directly convertible to gold.

-system relied on economically well managed U.S. when the U.S. began to print money, run high trade deficits, the system was strained (U.S. dollar came under speculative attack)

-Jamaica Agreement - -declared floating rates acceptable, gold was abandoned

-Exchange rates since 1973 - -more volatile due to oil crises, loss of confidence in the dollar

-Which is better(Advantages) - Floating - -Monetary policy autonomy - no obligation to maintain exchange rate parity restores monetary control to a government

Automatic trade balance adjustments - no need for IMF to agree to a currency devaluation

-Which is better (Advantages) - Fixed - -Provides monetary discipline

minimizes speculation

reduces uncerntainty

-What type of exchange rate is in practice today - -multiple types ranging from free float, managed gloar

-currency crisis - -speculative attack on the exchange calue of a currency results in its depreciation

-banking crisis - -loss of confidence in banking system leads to a run on the banks