Multinational Financial Management, 10th solution manual ch_03

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1、17CHAPTER3:THEINTERNATIONALMONETARYSYSTEMCHAPTER3THEINTERNATIONALMONETARYSYSTEMThepurposeofthischapteristohelpstudentsunderstandwhattheinternationalmonetarysystemisandhowthechoiceofsystemaffectscurrencyvalues.Italsoprovidesahistoricalbackgroundoftheinternationalmonetarysystem.Thise

2、nablesstudentstogainperspectivewhentryingtointerpretthelikelyconsequencesofnewpoliciesintheareaofinternationalfinance.Thischapterdescribeshowexchangeratesaredeterminedunderfourdifferentmechanismsfreefloat,managedfloat,fixedratesystem,andtargetzonesystem.Underthelatterthreesyste

3、ms,governmentsinterveneinthecurrencymarketsinoneformoranothertoaffecttheexchangerate.Regardlessofthesystemchosen,itsdesignisconstrainedbythefundamentaltrilemmaofinternationalfinance.This“impossibletrinity”ofinternationalfinancestemsfromthefactthat,ingeneral,economicpolicymakerswoul

4、dliketoachieveeachofthefollowingthreegoals:astableexchangerate,anindependentmonetarypolicy,andcapitalmarketintegration.Thepolicymaker’strilemmaisthatinpursuinganytwoofthesegoals,thecountrymustforgothethird.KeyPoints1.Underamanagedfloat,fixedratesystem,andtargetzonesystem,whichinv

5、olvevaryingdegreesofcentralbankintervention,therealexchangerateisliabletochange,withimportantimplicationsforexchangeriskmanagement(asdiscussedinChapters9through11).2.Regardlessoftheformofintervention,fixedratesdon'tremainfixedforlong.Neitherdofloatingrates.Thebasicreasonthatexchang

6、eratesdon'tstayfixedforlongineitherafixedorfloatingratesystemisthatgovernmentssubordinateexchangerateconsiderationstodomesticpoliticalconsiderations.3.Thegoldstandardisaspecifictypeoffixedexchangeratesystem,onethatrequiredparticipatingcountriestomaintainthevalueoftheircurrenciesi

7、ntermsofgold.Callsforanewgoldstandardremindusofthefundamentallackoftrustinfiatmoneyduetothehistoricalunwillingnessofthemonetaryauthoritiestodesistfromtamperingwiththemoneysupply.4.Interventiontomaintainadisequilibriumrateisusuallyeitherineffectiveorinjuriouswhenpursuedoverlengthype

8、riodsoftime.Seldom,ifever,