International monetary system: Exchange rates and risks
An international monetary system is a set of internationally agreed guidelines, conventions and supporting institutions that facilitate international trade, investments and generally the reallocation of capital between countries. It should provide means of payment acceptable to buyers and sellers of different nationalities, including deferred payment. To operate successfully, international monetary system needs to:
inspire confidence
provide sufficient liquidity for fluctuating levels of trade
provide means by which global imbalances can be corrected.
The system can grow organically as the collective result of various individual agreements between international economic factors spread over several decades
Components of international monetary system
- understand the components of the international monetary system and the importance of exchange rates
- know different types of risk related to international finance such as political risk, currency risk, and economic exposure
- understand the macroeconomic aspects of the economy including inflation and fiscal policies