Important landmarks of Currency Markets
Here are some important landmarks of currency markets:
- 1971: End of the Bretton Woods System – The U.S. suspended the convertibility of dollars into gold, marking the end of the fixed exchange rate system and the beginning of floating exchange rates.
- 1973: Smithsonian Agreement – The world’s major economies agreed to adjust their currency exchange rates against the U.S. dollar, leading to a new system of managed floating exchange rates.
- 1974: Introduction of the IMF’s Special Drawing Rights (SDRs) – SDRs are international reserve assets created by the IMF to supplement the existing official reserves of member countries.
- 1985: Plaza Accord – The U.S., Japan, Germany, France, and the U.K. agreed to intervene in currency markets to devalue the U.S. dollar, leading to a significant appreciation of the Japanese yen and the German mark.
- 1992: European Exchange Rate Mechanism (ERM) Crisis – Several European countries were forced to devalue their currencies and exit the ERM due to speculative attacks and unsustainable exchange rate policies.
- 1999: Introduction of the Euro – The Euro was introduced as the common currency of the Eurozone, replacing the national currencies of 19 member states.
- 2008: Global Financial Crisis – The crisis was triggered by the collapse of the U.S. subprime mortgage market and had significant impacts on currency markets, including currency devaluations and volatility.
- 2013: Abenomics – Japanese Prime Minister Shinzo Abe implemented a set of economic policies aimed at stimulating the Japanese economy, including aggressive monetary easing and a weaker yen.
- 2016: Brexit Referendum – The U.K. voted to leave the European Union, leading to significant uncertainty and volatility in currency markets, particularly for the British pound.
These landmarks have shaped the development and evolution of currency markets over time and continue to have significant impacts on the global economy.
Practice Questions
1. When did the Bretton Woods system end?
a. 1944
b. 1971
c. 1990s
d. Present
Answer: b. 1971
2. What is the Plaza Accord?
a. An agreement between the U.S. and Japan to devalue the U.S. dollar.
b. An agreement between the U.S., Japan, Germany, France, and the U.K. to intervene in currency markets.
c. An agreement between European countries to create a common currency.
d. An agreement between the IMF and member countries to create Special Drawing Rights.
Answer: b. An agreement between the U.S., Japan, Germany, France, and the U.K. to intervene in currency markets.
3. What is the European Exchange Rate Mechanism (ERM)?
a. A system of fixed exchange rates between European countries.
b. A system of flexible exchange rates between European countries.
c. A system of exchange rate pegs to the U.S. dollar.
d. A system of exchange rate pegs to gold.
Answer: a. A system of fixed exchange rates between European countries.
4. What is Abenomics?
a. A set of economic policies implemented by Japanese Prime Minister Shinzo Abe to stimulate the Japanese economy.
b. An agreement between European countries to create a common currency.
c. An agreement between the IMF and member countries to create Special Drawing Rights.
d. An agreement between the U.S., Japan, Germany, France, and the U.K. to intervene in currency markets.
Answer: a. A set of economic policies implemented by Japanese Prime Minister Shinzo Abe to stimulate the Japanese economy.
5. When was the Euro introduced as the common currency of the Eurozone?
a. 1985
b. 1992
c. 1999
d. 2008
Answer: c. 1999
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