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Determination of Exchange Rate - Coursework Example
Author : anabel99
Finance & Accounting
Pages 16 (4016 words)
Determination of Exchange Rate Tutor: Date: History of Exchange Rates As noted by Bagella et al (2006, p.1151), the choice of policies of exchange rates was not so vexing sometimes back. In modern period, the selection of an exchange rate policy that suits a country is vital since though the selection of the policy is convenience based given application of international rules and regulations…
The initial period was 1870 to 1914 where most countries adopted the gold standard where gold was used as domestic money. The above gold standard was a uniform exchange rate regime, though some countries constantly used silver while other countries gold inconvertible currencies (Ehrmann and Fratscher, 2004, p. 105). The start of the First World War interrupted this exchange rate era thereby bringing in the second phase that was 1914-1946. Under this second period, there were many changes as many countries saw great variations of currencies used among countries and the over time. Exchange controls were initiated with most countries utilizing the floating exchange rates (Escobar, 2012). It was noted that in the late 1920s, the efforts to restore the gold standards as were before the war began aborted (Deaton and Duprietz, 2011, p. 152). The exchange rate policy was dominated by the Breton Woods agreement that was signed in 1944 between 1946 and 1973. Through this pact, countries agreed to commit themselves to convertible currencies that could be converted to the current account and the fixed exchange rate (Chinn and Hiro, 2005, p. 301). The pact enhanced eschew of exchange controls and fixing the exchange rates due to the negative lessons that were experienced after the world war (Bagella, et al. 2006, p. ...