capital budgeting Essay

Foreign Exchange Markets and Gold Standard

Shelly Wells

International Business

Barrett Travis

February 8, 2009

                                                                                                         


                                                                                                         
Foreign Exchange Markets and Gold Standard
    Throughout much of history gold has served as the commodity that had most widely facilitated free exchange.   This paper presents an overview to the development of the Gold Standard and how it helped influence the Foreign Exchange Market.   We will discuss what the gold standard was, its function and positive and negative impacts that it served while being used.   The functions of the world’s foreign exchange markets will also be discussed, as well as the major foreign currency marketplaces.   This will help in giving us an informative view of how the monetary system worlds as a global trading and banking system for the world.
    The gold standard by definition is “a commitment by participating countries to fix the prices of their domestic currencies in terms of a specific amount of gold (Bordo, 2008).”   It was set into place by Sir Issac Newton and passed by congress in 1900 know as the Gold Standard act.   The United States served as the reserve country and they set the fixed price of gold to be at the price of $20.67 per oz.   Thus being the reserve country the United States did not exchange gold with public traders but only with central banks which were located in many countries and cities all over the world.   The government bank which the gold was stored was known as gold reserves, and there had to be enough gold to cover all of the exchanges that took place.   The non reserve countries fixed their rates as proposed by the United States and thus set the gold standard into place.  
    This monetary system helped in the foreign exchange market to become a possibility....