Introduction to International Finance: Chapter 1 Preview

In a fixed exchange rate regime, the exchange rate is set by the government and remains stable for a period of time. This requires coordination between countries to maintain the fixed rate. In a floating exchange rate regime, the exchange rate is determined by the market and fluctuates continually. This leads to a greater need for international policy coordination to manage the effects of these currency fluctuations.

In an international setting, capital markets face the special concerns of currency fluctuations altering the value paid, and the risk of countries, especially developing ones, defaulting on debt.

International trade focuses on the movement of goods and services across nations, while international finance focuses on financial or monetary transactions across nations. International trade theory and policy are covered in Econ/Trade Chapters 2-12, while international monetary theory and policy are covered in Econ Chapters 13-22 and Finance Chapters 2-11.

<p>International capital markets have to cope with special regulations that countries impose on foreign investments, including dealing with the special risks of currency fluctuations and national default.</p> Signup and view all the answers

<p>The text states that the need for international policy coordination <strong>depends on the type of exchange rate regime</strong>. In a fixed exchange rate regime, coordination is required between countries to maintain the fixed rate. In a floating exchange rate regime, coordination is needed to manage the effects of continual currency fluctuations.</p> Signup and view all the answers