Briefly outline the main features of the Gold, Fixed-Exchange Rate, and Managed-Exchange Rate financial systems. Then explain whether or not, in light of the 2007-2008 financial crisis, decision makers should adopt a new system. If not, explain why. If so, outline a few institutions or rules that should be incorporated into a new system.

Question

Quizplus · Accepted Answer

The Answer is The Gold financial system is based on the use of gold as the standard for monetary value, with currency being directly convertible into a certain amount of gold. This system provides stability and limits the ability of governments to manipulate the money supply. The Fixed-Exchange Rate system involves governments fixing the value of their currency to a specific foreign currency or a basket of currencies, providing stability in international trade. The Managed-Exchange Rate system allows for some flexibility in the exchange rate, with central banks intervening to stabilize the currency as needed.

In light of the 2007-2008 financial crisis, decision makers should consider adopting a new system. The crisis revealed the limitations and vulnerabilities of the existing financial systems, particularly in terms of their inability to prevent or mitigate the impact of the crisis. A new system should incorporate institutions and rules that promote transparency, accountability, and stability in the financial markets. This could include the establishment of an independent regulatory body with the authority to monitor and regulate financial institutions, as well as the implementation of stricter capital requirements and risk management practices. Additionally, the new system should prioritize international cooperation and coordination to address global financial challenges. Overall, decision makers should consider a new financial system that addresses the shortcomings exposed by the 2007-2008 financial crisis and promotes a more resilient and stable global economy.

Briefly Outline the Main Features of the Gold, Fixed-Exchange Rate