International finance Assignment Example | Topics and Well Written Essays - 2250 words

International pay - Assignment ExampleThe system of the Agreement was aimed towards keeping the major currencies of the world at a mend pass judgment. With the collapse of the system, the world economies have been facing the volatility which is continuing at present as well. downstairs the system of Bretton Woods, the various countries major currencies were used to be refractory in relation to the Dollar charm the Dollar was inflexible with respect to the value of gold. This system indicated that the threat of currency instability was to be abided by the governments. As a result of this system, the corporation houses were to deal with lesser trading activities related with foreign currencies on a large volume. The system of the Bretton Woods Agreement at that time was factually capable of providing earthshaking firmness within the grocerys of currencies (Hussain, 2010). The governments prefer fixed swap rates to floating exchange rates which is universal at present in the world economies because beneath the later system, the currencies demand and supply factors are the determinative of the rate of exchanges within the trade of foreign exchange. Thus, the governments power over the fluctuations of the currency valuation gets removed under the floating rate system. Along with this fact, the risk associated with the currency and financials appears in privatised mold (Ono, 2004). On the other hand, the typical system of the fixed exchange rate allows the governments or respective authorities to bestow controls over accredited tools of the monetary policy such as that of the regulation on the rates of interests and supply of money through and through issuing fresh bills. However, the authorities in charge of the monetary policies function under the control and politics of a board of currency which allows the authorities to enhance the money supply only after ensuring that the point country has sufficient reserves of the foreign currency that are es sential for backing up the sweetener of domestic currency within the nation (International Monetary Fund, 2009). More precisely, it is due to the following advantages of fixed exchange rates in the international monetary system that government prefers to preserve it. Firstly, due to the existence of fixed exchange rate system, price constancy in the international trading market can be ensured for the purpose of effective performance on trading. Price stability in the international trading market aids towards its growth and it also assures less risk for the businesses. Secondly, fixed exchange rates are termed to be inclined towards policies against inflation under this system. The countries are required to operate under strict policies related to some(prenominal) monetary as well as fiscal administration. Thirdly, the regimes under the system of fixed exchange rate demand from the Central Bank that it should uphold huge amount of foreign reserves in the form of both hard currencies and gold as well. This requirement of the fixed exchange rate regime helps in backing up risks that can arise due to any adverse situation of the international market (Fordham University, 2011). Along with the above mentioned benefits, another essential benefit sought by the government that make the fixed exchange rate system preferable for the government is that fixed rates are highly