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The International Monetary System - Chapter 3: Part I. Alternative Exchange Rate Systems I. Five Market Mechanisms
The International Monetary System - Chapter 3: Part I. Alternative Exchange Rate Systems I. Five Market Mechanisms
C. Target-Zone Arrangement
1. Rate Determination
a. Market forces constrained to upper/lower range of
rates.
b. Members to the arrangement adjust their national
economic policies to maintain target.
E. Current System
1. A hybrid system
a. Major currencies: use freely-floating method
b. Others move in and out of various fixed-rate systems.
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Finance 4328 (Moore) Chapter 3 Lecture Outline
PART III.
THE EUROPEAN MONETARY SYSTEM
I. INTRODUCTION
A. The European Monetary System (EMS)
1. A target-zone method (1979)
2. Close macroeconomic policy
coordination required.
2. Member Pledge:
To keep within 15% margin above or below the central
rate.
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Finance 4328 (Moore) Chapter 3 Lecture Outline
F. Maastricht Treaty
1. Called for Monetary Union by 1999 (moved to 2002).
2. Established a single currency: the euro
3. Calls for creation of a single central EU bank.
4. Adopts tough fiscal standards.
B. Costs
1. Lack of national monetary flexibility.
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