Fixed Exchange Rate and Floating Exchange Rate Systems

Fixed Exchange Rate and Floating Exchange Rate Systems Assignment example
High school
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Finance & Accounting
Pages 10 (2510 words)
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Evaluation of the Governments’ and Private Investors’ Preference towards Fixed Exchange Rate and Floating Exchange Rate Systems Respectively
Evaluation of the Membership Positions of Greek and Irish Government in the Eurozone in Responding towards the Financial Crisis …

Introduction

Under the system of Bretton Woods, the various countries’ major currencies were used to be fixed in relation to the Dollar while the Dollar was fixed with respect to the value of gold. This system indicated that the threat of currency instability was to be abided by the governments. As a result of this system, the corporation houses were to deal with lesser trading activities related with foreign currencies on a large volume. The system of the Bretton Woods Agreement at that time was factually capable of providing significant firmness within the markets of currencies (Hussain, 2010). The governments prefer fixed exchange rates to floating exchange rates which is prevalent at present in the world economies because under the later system, the currencies’ demand and supply factors are the determinant of the rate of exchanges within the market of foreign exchange. The governments prefer fixed exchange rates to floating exchange rates which is prevalent at present in the world economies because under the later system, the currencies’ demand and supply factors are the determinant of the rate of exchanges within the market of foreign exchange. Thus, the governments’ power over the fluctuations of the currency valuation gets removed under the floating rate system. Along with this fact, the risk associated with the currency and financials appears in privatised form (Ono, 2004). ...
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