©2004 Prentice Hall7-1
Chapter 7:
The
International
Monetary
System and the
Balance of
Payments
International Business, 4th Edition
Griffin & Pustay
©2004 Prentice Hall7-2
Chapter Objectives_1
Discuss the role of the international
monetary system in promoting
international trade and investment
Explain the evolution and functioning
of the gold standard
Explain the evolution of the flexible
exchange rate system
©2004 Prentice Hall7-3
Chapter Objectives_2
Summarize the role of the World Bank
Group and the International Monetary Fund
in the post-World War II international
monetary system established at Bretton
Woods
Describe the function and structure of the
balance of payments accounting system
Differentiate among the various definitions
of a balance of payments surplus and deficit
©2004 Prentice Hall7-4
The Gold Standard
Countries agree to buy or sell their
paper currencies in exchange for gold
on the request of any individual or firm
and to allow the free export of gold
bullion and coins
Adopted by the U.K. in 1821
Created a fixed exchange rate
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Exchange Rates
Exchange rate: price of a one currency
in terms of a second currency
Fixed exchange rate system: price of a
given currency does not change relative
to each other currency
–Under the gold standard, each country
pegged the value of its currency to gold
