The International Monetary System

The international monetary system is a framework composed of various financial

institutions and corporations. It provides a variety of rules and procedures for handling
international transactions. The international monetary system serves as an operating system
for financial institutions, corporations, and investors. It enables them to manage their
international transactions. The smooth exchange of currencies between countries is essential
for global trade. Businesses rely on a reliable and predictable system.
The International Monetary Fund (IMF) is a non-profit organization that works to
promote global economic growth and financial stability, as well as international trade and
poverty reduction. It serves a variety of purposes, including assisting countries in developing
and executing successful economic policies, monetary and banking rules and regulations. The
IMF provides support through surveillance, which it conducts on an annual basis for specific
nations, regions, and the global economy as a whole. However, if a country finds itself in an
economic crisis, whether due to a sudden shock to the economy or inadequate macroeconomic
planning, it may request financial aid. A financial crisis will lead to a significant depreciation of
the country's currency or a significant depletion of the country's foreign reserves. A country is
normally expected to embark on an IMF-monitored economic reform program, also known as
Structural Adjustment Programs, in exchange for IMF assistance (SAPs). Aside from all of these
functions, roles of International Monetary Fund include international monetary cooperation on
which it foster among countries a monetary rules and regulations to which is made for
stabilizing the exchange of one national currency for another. it also help in dealing with the
balance payments adjustment and with the economic crisis by which it provides international
coordination like loans. And lastly international monetary fund also promotes rate stability to keep
members' exchange arrangements in order and avoid competitive exchange depreciation.

The IMF bears a significant responsibility and plays a vital role in the future. The world economy
will be stabilized, and poverty will be reduced. The IMF has considerable authority, and its decisions
have an impact on the global economy.
 Fixed and Floating exchange rates

Based on what I have indulge to the research I made on what is fixed exchange rate,
well in short way of expressing it fixed exchange rates are price controls. A fixed exchange rate
regime lowers the transaction costs associated with exchange rate uncertainty, which may
deter international commerce and investment, and offers a credible anchor for low-inflationary
monetary policy. This happens when a government or central bank that ties a country's official
currency exchange rate to the price of gold or another country's currency. A fixed exchange
rate system's goal is to keep the value of a currency within a small range. This assists in the
efficient transfer of funds from one country to another. It aids developing and developing
countries in attracting international investment. It also aids smaller countries in avoiding
currency depreciation. Many countries use their own currency to keep inflation under control.
Like for example, in Aruba which is one of the countries that have fixed exchange rate of 1.79
florin which equals to 1 US dollar. On the other hand, A floating exchange rate is governed by
supply and demand in the private market. Any disparities in supply and demand will be
immediately rectified in the market, making a floating rate "self-correcting." Consider the
following simplistic model: if a currency's demand is low, its value will fall, making imported
items more costly and encouraging demand for local goods and services. As a result, additional
employment will be created, causing the market to self-correct. The value of a variable
exchange rate changes all the time. Like for example, Philippines, the country's exchange rate
policy supports a freely floating exchange rate system whereby the Bangko Sentral ng Pilipinas
(BSP) leaves the determination of the exchange rate to market forces.
Both forms of exchange rate regimes have advantages and disadvantages, and the best
regime for a given country may vary based on its circumstances. In actuality, there are a
number of exchange rate regimes that fall somewhere between these two extremes, providing
a balance of stability and flexibility.
 The Impact of European currency (EURO)

Since the widespread adoption of flexible exchange rates in the early 1970s, the
establishment of the euro will be the most significant milestone in the history of the
international monetary system. It will very definitely be the most significant shift in the
monetary (rather than adjustment) dimension of the system since the dollar replaced sterling
as the world's leading currency during the interwar era.
The euro makes buying and selling inside the euro zone, as well as trading with the rest
of the globe, easier, cheaper, and safer for businesses. enhanced economic growth and stability
Financial markets that are more interconnected and hence more efficient. stronger economic
clout in the world. Economic stability is beneficial to the economy of a member country
because it allows the government to plan for the future. Businesses, on the other hand, gain
from economic stability since it reduces uncertainty and encourages investment. This, in turn,
helps the general population by increasing employment and improving job quality. Within the
euro area, the euro has reduced the expenses of exchange rate swings. This protects consumers
and companies in the eurozone against expensive currency market movements, which have
previously undermined confidence, discouraged investment, and caused economic instability in
some countries. Prior to the euro, the necessity to convert currencies resulted in increased
costs, risks, and a lack of transparency in cross-border operations. Doing business and investing
in the eurozone is easier, cheaper, and less dangerous when using a single currency.
Wise management benefits the euro zone economy. Economic and fiscal laws of the EU
encourage economic stability and growth, notably the Stability and Growth Pact, which is a key
component of Economic and Monetary Union. The euro is a critical tool for maximizing the
benefits of the single market, trade policy, and political collaboration. As a result, it is an
intrinsic element of the European Union's economic, social, and political systems today.
 Calculating Foreign Exchange Rate

An exchange rate is the cost of converting one currency into another. Because currencies are
regularly traded, exchange rates fluctuate throughout the week. This causes the price to fluctuate, much
like other assets like gold or equities. When you exchange money, the market price of a currency — how
many US dollars it takes to buy a Canadian dollar, for example – differs from the rate you will get from
your bank. It is a common component of financial trilemmas. This article explains how exchange rates
operate and how to tell whether you are receiving a fair price.

Calculations for the exchange rate you will use this formula:

Starting Amount (Original Currency) / Ending Amount (New Currency) = Exchange Rate

For example, if you exchange 100 USD for 80 EUR, the exchange rate would be 1.25.

If you know the exchange rate, divide your current currency by the exchange rate. For example,
suppose that the USD/EUR exchange rate is 0.631 and you’d like to convert 100 USD into
EUR.To accomplish this, simply multiply the 100 by 0.631 and the result is the number of EUR
that you will receive: 63.10 EUR. Converting EUR to USD involves reversing that process. Using
the same example, if you took your 63.10 EUR and multiplied it by 0.631, you end up with the
100 USD you started with.