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  • International Financial Management: Pavani Raju

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    Nithyananda Patel R MBA
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    The European monetary system linked most European economic community currencies through a multilateral adjustable exchange rate agreement. Under a fixed exchange rate, governments set and maintain currency values to provide trade and investment confidence and certainty, while avoiding speculation, but require large foreign reserves and can discourage free markets through under or overvaluation. A flexible exchange rate varies by market forces to remove external instability without reserves, and avoids under or overvaluation, but discourages trade and investment with uncertainty from currency fluctuations and encourages speculation.

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    The European monetary system linked most European economic community currencies through a multilateral adjustable exchange rate agreement. Under a fixed exchange rate, governments set and maintain currency values to provide trade and investment confidence and certainty, while avoiding speculation, but require large foreign reserves and can discourage free markets through under or overvaluation. A flexible exchange rate varies by market forces to remove external instability without reserves, and avoids under or overvaluation, but discourages trade and investment with uncertainty from currency fluctuations and encourages speculation.

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    2 views5 pages

    International Financial Management: Pavani Raju

    Uploaded by

    Nithyananda Patel R MBA
    The European monetary system linked most European economic community currencies through a multilateral adjustable exchange rate agreement. Under a fixed exchange rate, governments set and maintain currency values to provide trade and investment confidence and certainty, while avoiding speculation, but require large foreign reserves and can discourage free markets through under or overvaluation. A flexible exchange rate varies by market forces to remove external instability without reserves, and avoids under or overvaluation, but discourages trade and investment with uncertainty from currency fluctuations and encourages speculation.

    Copyright:

    © All Rights Reserved
    Download as PPTX, PDF, TXT or read online from Scribd
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    of 5

    International

    Financial
    Management
    Pavani Raju

    Mba 4th sem


    European Monetary System

    The European monetary system is a multilateral adjustable


    exchange rate agreement in which most of the nations of the
    European economic community linked their currencies.
    Fixed Exchange Rate

    It is a rate which the government sets and maintains at the same level.

    -Confidence and certainty for trade and investment decisions.


    -Avoids speculation in forex market
    -Helps government to check inflation

    -Need to maintain a large foreign exchange reserve


    -Discouraging the objectives of having free markets
    -May result in undervaluation or overvaluation of currencies
    Flexible Exchange Rate
    It is a rate that varies according to the market forces

    -Operates to remove external instability by change in forex rate


    -No need to maintain gold reserves
    -Eliminates problem of undervaluation and overvaluation of currency

    -International trade and investment is discouraged due to the uncertainty caused


    by currency fluctuations
    -Encourages Speculation
    Thank You

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