8) exchange rate system + SDR
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10 Terms
exchange rate system
what are the 3 most common methods of exchange rate system?
free float
dirty float
pegging
exchange rate system
what does the exchange rate system do?
it controls how much one country’s money is worth in another country’s money
exchange rate system
what is free float?
value of a currency is set by whatever the market is prepared to pay
exchange rate system
what is dirty float (managed float)?
exchange rate is mostly decided by the market
central bank may influence market by buying or selling its own currency
exchange rate system
what is pegging (fixed exchange rate)?
a country fixes the value of its currency (pegs the value) to another major currency or a group of major currencies
SDRs
what are Special Drawing Rights (SDRs)?
SDRs are a special kind of money created by the IMF
convertible money
SDRs
why did IMF create SDRs?
provide a supplement to existing reserve assets
SDRs
what determines the value of one SDR?
value of an SDR is based on the average worth of five major currencies: Yuan, Euro, Pounds, Yen, and US Dollar
SDRs
how much is 1 SDR worth in US dollars?
1 SDR = US$1.362990
SDRs
how many SDRs are there and how much are they worth in total?
21.4 million SDRs
worth US$33 billion'
accounts for 2% of all reserves