Slide 1Exchange-Rate PracticesExchange-Rate PracticesExchange-Rate PracticesExchange-rate arrangements of IMF members, 2008Choosing an exchange-rate systemSlide 7Slide 8Fixed Exchange-Rate SystemSlide 10Fixed Exchange-Rate SystemFixed Exchange-Rate SystemFixed Exchange-Rate SystemExchange-rate stabilization under a fixed exchange-rate systemFixed Exchange-Rate SystemFixed Exchange-Rate SystemFixed Exchange-Rate SystemSlide 18Fixed Exchange-Rate SystemFixed Exchange-Rate SystemFixed Exchange-Rate SystemFixed Exchange-Rate SystemIs China a currency manipulator?Is China a currency manipulator?Is China a currency manipulator?Floating Exchange RatesMarket adjustment under floating exchange ratesFloating Exchange RatesFloating Exchange RatesFloating Exchange RatesFloating Exchange RatesManaged Floating RatesManaged Floating RatesManaged Floating RatesManaged floating exchange ratesManaged Floating RatesExchange-rate stabilization and monetary policyManaged Floating RatesThe Crawling PegCurrency CrisesExamples of currency crisesExamples of currency crisesCurrency CrisesCurrency CrisesCapital ControlsCapital ControlsCapital ControlsCapital ControlsCapital ControlsIncreasing the Credibility of Fixed Exchange RatesIncreasing the Credibility of Fixed Exchange RatesIncreasing the Credibility of Fixed Exchange RatesIncreasing the Credibility of Fixed Exchange RatesIncreasing the Credibility of Fixed Exchange RatesIncreasing the Credibility of Fixed Exchange RatesIncreasing the Credibility of Fixed Exchange RatesIncreasing the Credibility of Fixed Exchange RatesIncreasing the Credibility of Fixed Exchange RatesIncreasing the Credibility of Fixed Exchange RatesIncreasing the Credibility of Fixed Exchange RatesThe global economic crisis of 2007–2009The global economic crisis of 2007–2009The global economic crisis of 2007–2009The global economic crisis of 2007–2009The global economic crisis of 2007–2009The global economic crisis of 2007–2009The global economic crisis of 2007–2009Exchange-Rate Systemsand Currency Crises© 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password protected website for classroom use‐1PowerPoint slides prepared by:Andreea ChiritescuEastern Illinois UniversityExchange-Rate Practices•Floating exchange-rate system•Determined by market forces•Float independently•Float in unison with a group of other currencies•Crawl according to a predetermined formula© 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password protected website for classroom use‐2Exchange-Rate Practices•Pegged exchange-rate system•Fixed against some standard of value•Anchor to a single currency•Anchor to a basket of currencies•Anchor to gold – not used since 1971© 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password protected website for classroom use‐3Exchange-Rate Practices•Members of the IMF•Exchange rates should not be manipulated•To prevent effective balance-of-payments adjustments •To gain unfair competitive advantage over other members•Members should act to counter short-term disorderly conditions in exchange markets•When members intervene in exchange markets•Take into account the interests of other members© 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password protected website for classroom use‐4© 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password protected website for classroom use‐5Exchange-rate arrangements of IMF members, 2008TABLE 15.1© 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password protected website for classroom use‐6Choosing an exchange-rate systemTABLE 15.2Choosing an Exchange Rate System: Constraints Imposed by Free Capital Flows•Allowing free capital flows •Constrains a country’s •Choice of an exchange-rate system•Ability to operate an independent monetary policy•Impossible trinity •A country can maintain only two of the following three policies:•Free capital flows•A fixed exchange rate•An independent monetary policy© 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password protected website for classroom use‐7Countries can adopt only two of the following three policies: free capital flows, a fixed exchange rate, and an independent monetary policy.© 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password protected website for classroom use‐8FIGURE 15.1Fixed Exchange-Rate System•Fixed exchange rates •Used primarily by small, developing nations•Currencies are anchored to a key currency•Key currency•Widely traded on world money markets•Demonstrated relatively stable values over time•Widely accepted as a means of international settlement© 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password protected website for classroom use‐9© 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password protected website for classroom use‐10Key