eld by foreign central banks, into gold anymore and the U.S. tried maintaining the dollar at a fixed exchange rate with other currencies instead of gold. But this still was not a good system. Then by 1973 the Bretton Woods system was no longer in effect either, and the change to the floating exchange rate system was complete. “Since March 1973, there has been five main currencies, they make up a managed floating non-system. Each country has been completely free to conduct its monetary policy as it wished, and flexible exchange rates could accommodate differential inflation rates”(Corden 179). Since then, all major industrial countries have followed the U.S. and allowed their currencies to "float" also. So each country has the freedom to find their own values in relation to other currencies to set their own exchange rates, but the central banks still have the authority to intervene occasionally to prevent large short-term fluctuations in the exchange rates. There are, at least, some advantages to freely floating rates. They can act as “shock absorbers”. The biggest advantage of floating exchange rates is that they give each country control over its domestic affairs. Some economist’s favor floating rates for many of the same reasons that they favor a free market system; these people believe that currency prices should be determined by supply and demand, and not just by government regulation. On the other hand, there are bankers and international traders that tend to prefer fixed exchange rates because they are much more reliable for doing business. If there are floating exchange rates there may be large fluctuations in a very short period of time that could possibly result in a recession or inflation in their country. “Exchange rate changes that deviate from their equilibrium values lead to adjustment problems and real effects on the economy. Econometric studies of impact of foreign exchange rate variation on foreign direct investment typically focus on the short-term variability of exchange rates”(Hasnat 235). One can see the effects of the exchange rate on other aspects of the economy if you examine it closely. One major impact the exchange rates have on the economy deals with imports and exports. Exchange rates tell how much one currency is worth in terms of another, so for an example to compare the effect on imports and exports to domestically produced goods, we can examine a situation with the Japanese yen and the U.S. dollar. The higher the cost of a yen in terms of dollars also means the lower the cost of dollars per yen. The result is the Japanese would much rather buy American goods because they can get more in terms of an American dollar. Also, the American demand for Japanese goods will be lower since Americans can get more value out of their own currency when purchasing American goods. Demand and supply with international trade is also affected greatly by the exchange rates. Americans who want to buy, for example, Japanese goods, which would be Japanese exports and American imports, demand yen. The lo

Some topics in this essay:
Bretton Woods, Exchange Rates, Gold Standard, Japanese Japanese, Japan United, Britain France, Agreement Governments, exchange rates, exchange rate, American Demand, rate system, fixed exchange, floating exchange, fixed exchange rate, exchange rate system, bretton woods, demand yen, gold standard, supply demand, woods system, bretton woods system, War II, system fixed exchange, floating exchange rates,