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Essay / Research Paper Abstract
This 17 page research essay describes and explains the factors involved in determining international exchange rates using Krugman's formulas as a point of reference and emphasis. The Bretton-Woods Agreement is first described in terms of its articles referring to exchange rates; the collapse of Bretton-Woods is discussed along with the results of the breakdown in the system. Target Zones have been widely discussed as the upper and lower boundaries within which to hold the exchange rates; Krugman is the first to offer formulas to describe the dynamics of money within target zones. His formulas are presented and explained. Bibliography lists 7 sources.
Page Count:
17 pages (~225 words per page)
File: D0_ExchnRts.doc
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Unformatted sample text from the term paper:
and hundreds of books. There is speculation that countries without a central bank are able to hold a more stable exchange rate of their money than countries with central banks
(Schuler, 1997). Schulers reviews of the exchange rates over the last 10 years would suggest his proposition may be valid. This essay
will explore the international money scene in terms of exchange rates focusing especially on Krugmans proposed formulas found in his articles and books and also offering comments regarding exchange rates
from other sources. Bretton-Woods Agreement The Bretton-Woods system is an essential component in this
discussion because it was an agreement made by Britain, the United States and their allies to hasten reconstruction following World War II. The goals of the system developed in 1944
and named after the location of the meetings were to make reconstruction easier and faster, to foster economic integration through trade among nations. While the agreement made at Bretton-Woods did
not include definitive clauses about trade, it did address currencies (Marshall, 1994). The agreement proposed an exchange-rate regime that pegged currencies to either
gold or the dollar. This meant that exchange rates were directly related to the value of gold and the amount of gold the nation owned. The American dollar, at that
time, was pegged to gold, therefore, other currencies pegged to the dollar were, in effect, pegged to gold. It was thus a "fixed exchange rate" system. The system allowed for
adjustments to be made only when there were exceptional circumstances and also only under the supervision of the International Monetary Fund (IMF), which was created for the express purpose of
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