International Financial Management Free Essay Example, 3000 words

To avoid this discrepancy some kingdom printed currency on gold and silver. This was an effective method of valuing currency and easing problems of international trade. With the introduction of international financial consolidation, effective exchanges were set up for valuation and exchange of currency. The gold standard system was replaced by a fixed exchange rate system. Under this system value of all currencies was fixed against a currency. National currencies under this system were monitored very closely and it was ensured that there were no sudden movements in the value of any currency. The 1970s, however, saw a sudden overvaluation of the dollar which had disastrous effects for currencies pegged against the dollar. The fixed exchange rate system was thus abolished. The need arose for a new system which could incorporate the effects of inflation in the exchange value of currencies. Thus the floating exchange rate system was implemented internationally. This system is practiced until today internationally. The economic practicality of the exchange rate system is the main reason behind its success. According to the floating exchange rate system the supply and demand for each currency are determined by market forces and thus a price is automatically established. We will write a custom essay sample on International Financial Management or any topic specifically for you Only $17.96 $11.86/page