Foreign Exchange Market Summary
INB 205 International Business
By: Kasha Peterson
Due Date: September 14, 2008
What is gold standard? Gold Standard is when a country agrees to buy or sell gold for an established number of currency units. Gold is especially attractive in times of economic and political crisis stated Elizabeth Smith. As the most widely accepted global currency, gold is viewed as a source of stability in times of currency inflation, stock market uncertainty and political conflict (Elizabeth Smith). The first modern international monetary system was the gold standard. The advantages of the system lay in its stabilizing influence stated the article titled The Gold and Gold Bullion Standards. A nation that exported more than it imported would receive gold in payment of the balance; such an influx of gold raised prices, and thus lowered the value of the domestic currency. Higher prices resulted in decreasing the demand for exports, an outflow of gold to pay for the now relatively cheap imports, and a return to the original price level (The Gold and Gold Bullion Standards). International demand for gold has also increased in recent years and shows no signs of slowing (Elizabeth Smith). Many emerging economies are seeking gold to build up their currency reserves (Elizabeth Smith). The government can only print as much money as its country has in gold. This discourages inflation, which is too much money chasing too few goods. It also discourages government budget deficits and debt, which can't exceed the supply of gold. In addition, more productive nations are directly rewarded. As they export more goods, they can accumulate more gold. They can then print more money, which can be used for investing in and increasing these productive businesses. One disadvantage is that the size and health of a country's economy is dependent upon its supply of gold, not the resourcefulness of its people and businesses. Countries...