ExchangeR

1Inflation

2Changes in demands for export import

3Invisible trade

4Interest rates

5Capital movements

6Speculation

7Government activities

8Confidence to future

Floating ER from 70s

Advs

1Automatic stabilisation

2Freeing internal(unempl)policy constr

3Absence of crisis(occur when fixed rate)

4Management can still exist

5Flexibility(after oil price changes)

6Avoiding "import" of inflation

7Lower reserves needed

Disadvs

1Uncertainty

2Lack of investment

3Speculation

4Lack of discipline

 

 Fixed ER

Gold

Pegged

Exchange control(no change currencies)

adjustable peg

 

 Equil

1PPP

Abasket has nothing to do with IT

Binfluenced by govn.interest rates

CConfidence

2The portfolio balance theory - large investors  Ignores future expetations

3The interest rate parity theory - forwards

Recent

1Monetary funds - next chapter - attempt to stabilise(organisat.in essay)

2Dirty floating - buying excess EEA

3Trade weighted indices

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