Unlock document.
This document is partially blurred.
Unlock all pages and 1 million more documents.
Get Access
Chapter 6
Government Influence on Exchange Rates
Lecture Outline
Exchange Rate Systems
Fixed Exchange Rate System
Freely Floating Exchange Rate System
Managed Float Exchange Rate System
Pegged Exchange Rate System
Dollarization
Black Market for Currencies
A Single European Currency
Impact on Eurozone Monetary Policy
Impact on Firms in the Eurozone
Impact on Financial Flows in the Eurozone
Impact f Eurozone Country Crisis on other Eurozone Countries
Impact of a Country Abandoning the Euro
Direct Intervention
Reasons for Direct Intervention
The Direct Intervention Process
Direct Intervention as a Policy Tool
Speculating on Direct Intervention
Indirect Intervention
Government Control of Interest Rates
Government Use of Exchange Controls
Chapter Theme
This chapter introduces the various exchange rate systems. In addition, it stresses the manner by which
governments can influence exchange rates. Since exchange rate movements are critical to an MNC’s
performance, and the government has much influence over these exchange rates, the MNC is affected by
government intervention.
Topics to Stimulate Class Discussion
1. If you were elected to choose between a fixed, freely floating, or a dirty float exchange rate system,
which would you choose for your home country? Why?
2. Assume that both the U.S. and Europe experience high unemployment. How can the U.S. central
bank attempt to adjust the dollar value to reduce this problem? Is the European central bank likely to
go along with the U.S. central bank’s strategy or retaliate? Why?
