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The Plaza Accord was a joint agreement signed on September 22, 1985, at the Plaza Hotel in New York City, between France, West Germany, Japan, the United Kingdom, and the United States, to depreciate the U.S. dollar in relation to the French franc, the German Deutsche Mark, the Japanese yen and the British pound sterling by intervening in currency markets.
In terms of the diagram above (Oxelheim, 1990), the options are: Option (a): A stable exchange rate and free capital flows (but not an independent monetary policy because setting a domestic interest rate that is different from the world interest rate would undermine a stable exchange rate due to appreciation or depreciation pressure on the domestic currency).
[4]: 5, 6 In their 2005 meeting on foreign exchange market intervention, central bank governors had noted that, "Many central banks would argue that their main aim is to limit exchange rate volatility rather than to meet a specific target for the level of the exchange rate". Other reasons cited (that do not target the exchange rate) were to ...
The real exchange rate (RER) is the purchasing power of a currency relative to another at current exchange rates and prices. It is the ratio of the number of units of a given country's currency necessary to buy a market basket of goods in the other country, after acquiring the other country's currency in the foreign exchange market, to the ...
The forward exchange rate is the rate at which a commercial bank is willing to commit to exchange one currency for another at some specified future date. [1] The forward exchange rate is a type of forward price. It is the exchange rate negotiated today between a bank and a client upon entering into a forward contract agreeing to buy or sell ...
A currency band is a range of values for the exchange rate for a country’s currency which the country’s central bank acts to keep the exchange rate within. [ citation needed ] The central bank selects a range, or "band", of values at which to set their currency, and will intervene in the market or return to a fixed exchange rate if the ...
The model is, in effect, an extension of the IS/LM model applied to currency rates. According to Mundell's analysis: Discipline under the Bretton Woods system was more due to the US Federal Reserve than to the discipline of gold. Demand side fiscal policy would be ineffective in restraining central banks under a floating exchange rate system.
The plan involved nations agreeing to a system of fixed but adjustable [clarification needed] exchange rates so that the currencies were pegged against the dollar, with the dollar itself convertible into gold. So in effect this was a gold – dollar exchange standard. There were a number of improvements on the old gold standard.