International finance structure and IPE of international Debt - Essay Example

The diagram also illustrates the law of demand. Fewer dollars will be demanded when the price of a dollar increases according to the law of demand. The chapter also provides appropriate examples, the Microsoft Vista example is very appropriate to understand how the exchange rate works in different countries. Interest rates also play a pivotal role in determining the value of a dollar. Business expectations also play a crucial role in determining the exchange rate, since Mexican Peso has been taken up as an example it is very important to also consider interest rates in Mexico and business expectations in Mexico.

Capital gain is another subject that the chapter highlights. The business expectations in the United States are juxtaposed with the business expectations in Mexico. The demand part is initially presented in the chapter and the second part of the chapter comprehensively explains the supply side of the Dollar and how it relates to the Mexican economy. National income in the United States also plays a key role in the supply of the Dollar. . same concept can be applied to different currencies and its exchange rate can easily be found out and in addition to this the factors affecting the exchange rate can also be found out.

Foreign exchange rates are comprehensively explained in the following parts of chapter 7. Gold standard, Bretton Woods and floating exchange rate are the three most important exchange rate structures that have been used to determine the exchange rate. The Bretton Woods system of exchange was introduced in the year 1944 and the system was established in the Bretton Woods conference in New Hampshire. There is rapid growth and development taking place all across the globe, to make sure that everything goes on well, a system which should stabilize the growth is a must.

This paper will throw light upon the advantages of the Bretton Woods system and it will also provide a comprehensive understanding of the Bretton Woods fixed exchange rate system. The system has very old roots, after the devastating World War one all the countries wanted financial security to make sure that economic growth in the country takes place. The great depression in the 1929 was a result of the failure in the introduction of gold standard. Each and every currency intentionally deflated its currency in order to get high margin of profit from the exports which would decrease the deficit from the country’s economy.

The same had an adverse affect on all the countries, it triggered off international deflation, and this majorly impacted many countries, mass unemployment increased, big enterprises were going bankrupt, global economy witnessed hyper inflation. There were talks held among the representatives of various countries to form a system which would bring stability with regard to the financial and economic well being