History Of International Financial Market
What are International Financial Market ?
• The International Financial Markets are the
financial markets where indiviuals buy and sell
foreign assets such as :-
• International Financial Market is also a place
where various institutions lay down rules for
international transactions (exchange of money).
History of International Financial Market
Historical overview of International Financial Market
regime are broadly divided in to following heads:-
Classical Gold Standard ( Pre – 1914)
Bretton Woods System (1944 – 1973)
Floating Exchange Rates System (1973 onwards)
Gold Standard System (Pre-1914)
Gold has been a medium of exchange since
Each Currency was convertible in to gold at a
specified rate, as dictated by the Gold Standard.
Currency exchange rates were in effect fixed.
Was in effect until the outbreak of World War 1,
as the free movement of gold interrupted.
US Dollar($) is pegged to gold at $20.67 per oz.
British Pound(£) is pegged to gold at £4.25 per
Therefore, the exchange rate is determined by
the relative gold prices : $20.67 = £ 4.25
Then £1 = $4.87
The Inter War Years & WW
• During this period, currencies were allowed to
fluctuate over a fairly wide range in terms of
gold and each other.
• Increasing fluctuations in currency values
became realized as speculators sold short
• The US adopted a modified gold standard in
• During WWII and its chaotic aftermath the US
dollar was the only major trading currency that
continued to be convertible.
Bretton Woods Agreement (1944)
As WWII drew to a close, the Allied Powers met at
Bretton Woods, New Hampshire to create a post-war
international monetary system.
The 1944 Bretton Woods Agreement called for fixed
currency exchange rates.
The Bretton Woods Agreement established a US
dollar based international monetary system and
created two new institutions the International
Monetary Fund (IMF) and the World Bank.
By 1971, the U.S. dollar appeared to be
overvalued. The Smithsonian Agreement
devalued the U.S. dollar and widened the
boundaries for exchange rate fluctuations
from ±1% to ±2%.
Even then, governments still had
difficulties maintaining exchange rates
within the stated boundaries. In 1973, the
official boundaries for the more widely
traded currencies were eliminated and the
floating exchange rate system came into
Floating Rate System (1973 onwards)
A floating exchange rate system is a type of
exchange rate regime in which a currency’s value
is determined according its demand and supply.
In other words, it is a system in which currency’s
value is allowed to fluctuate according to foreign
In modern world most of the world currencies are