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The Monetary System in the International Arena - Coggle Diagram
The Monetary System in
the International Arena
Balance of Payments
The balance of payments is a summary statement of all transactions that take place between a country and the rest of the world during a given period of time (usually a year).
Current and Capital Accounts
Transactions in assets, termed the capital account of the balance of payments, consist of the purchase and sale of physical assets like land and buildings together with borrowing and lending
Balance of Payments Disequilibrium
It should be stressed from the outset that a deficit or a surplus in the balance of payments is an economic and not an accounting concept since, in the accounting sense, the balance of payments should always be zero.
The Foreign Exchange Market
The foreign exchange market, where different national currencies are bought and sold, provides
that link
Exchange Rates in the Business Context
The nominal exchange rate can be either a bilateral exchange rate. The effective exchange rate as a measure takes into account the fact that the dollar (or any currency) does not fluctuate evenly against all currencies.
Demand and Supply of Foreign Exchange
The exchange rate is a price. In a free market, exchange rates are set by
the forces of demand and supply—the demand for US dollars or the demand for euros and the supply of US dollars or the supply of euros
Exchange Rate Determination
A change in some or all of these factors can cause the demand curve and/or
the supply curve of a currency to shift.
Purchasing Power Parity
Exchange rate volatility in the short run is largely due to capital movements as funds are shifted internationally in search of higher interest rates. The medium-term determinants of exchange rates are largely affected by trade flows.
Exchange Rate Regimes
Exchange rate variability has given rise to a vast international literature on the relative merits of different exchange rate systems. Three basic exchange rate regimes have operated during the twentieth century: fixed exchange rates, flexible exchange rates, and managed exchange rates.
The International Monetary System
The international monetary system can be seen as a network affecting international payments through institutions, rules, and regulations.
The Gold Standard
The gold standard is the only example in history when exchange rates were truly fixed. It was a system whereby the values of currencies were fixed relative to the value of gold, which was used as a unit of account and the main reserve asset.