Page 22 - DMGT549_INTERNATIONAL_FINANCIAL_MANAGEMENT

Rupesh Roshan Singh, Lovely Professional University Unit 2: International Monetary System

Unit 2: International Monetary System Notes

CONTENTS
Objectives
Introduction

2.1 Evolution of the International Monetary System
2.1.1 The Gold Standard, 1876–1913
2.1.2 The Inter-war Years, 1914–1944

2.1.3 The Bretton Woods System, 1945–1973
2.1.4 The Flexible Exchange Rate Regime, 1973 – Present
2.2 Classification of Currency Arrangements – Present Day Currency Regimes
2.3 European Monetary System
2.3.1 Exchange Rate Mechanism (ERM)

2.3.2 European Currency Unit (ECU)
2.3.3 European Monetary Cooperation Fund (EMCF)
2.4 Summary

2.5 Keywords
2.6 Review Questions
2.7 Further Readings

Objectives

After studying this unit, you will be able to:

Explain the evolution of International monetary system
Discuss the classifications of currency arrangements
Explain the European monetary system
Introduction

This unit examines the International Monetary System and helps the student to understand how
the choice of system affects currency values. The unit discusses the first three phases of the IMS –
The International Gold Standard, The Inter-war Period and the Bretton Woods System, in brief.
It then discusses, in detail, the current International Monetary System. Finally, the classification
of currency arrangements and the European Monetary system are discussed.
The International Monetary System, as we have today, has evolved over the course of centuries
and defines the overall financial environment in which multinational corporations operate. The
International Monetary System consists of elements such as laws, rules, agreements, institutions,
mechanisms and procedures which affect foreign exchange rates, balance of payments adjustments,
international trade and capital flows. This system will continue to evolve in the future as the
international business and political environment of the world economy continues to change.

LOVELY PROFESSIONAL UNIVERSITY 17