Question

Describe the monetary system: Classical gold standard, fixed exchange rates, pegged rates, floating exchange rates

Answer 1

The gold standard is a monetary mechanism in which the currency or paper money of a country has a value that is directly connected to gold. Countries also agreed to turn paper money into a set sum of gold, through the gold standard. A nation using the gold standard sets a minimum gold price, and buys and sells gold at that price. That fixed price is used for determining the currency's value. For instance, if the US set the gold price at $500 an ounce, the dollar value would be 1/500th of an ounce of gold.

A fixed exchange rate is an exchange rate system in which a country's currency is either fixed to the currency of another country, a combination of currencies or some measure of value, such as gold. The monetary authority of a nation sets the exchange rate, and undertakes to buy or sell the domestic currency at that level. The central bank intervenes in the foreign currency market to sustain it, and adjusts interest rates.

A pegged exchange rate , also known as a fixed exchange rate, is a form of exchange rate in which the value of a currency is either set against the value of the currency of another country or against another value factor, such as gold. There are usually two ways for countries to value their currency on the international market. They may either set their currency (or peg) to gold or to another big currency, such as the US dollar or the euro. Alternatively they can allow the world market to float their currency.

A floating exchange rate is a system where a nation's currency price is determined by an bid- and demand-based forex market relative to other currencies. That is in contrast to a fixed exchange rate, where the government sets the rate completely or mainly.