International Monetary System and its Impact

Running head: FINANCE
Finance
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1FINANCE
Table of Contents
Answer to Question 1:.....................................................................................................................2
Answer to Question 2:.....................................................................................................................2
Answer to Question 3:.....................................................................................................................2

2FINANCE
Answer to Question 1:
International monetary system denotes a system, which develops standards and rules in
order to facilitate global trade among the nations. It assists in reallocation of capital and
investment from one country to another. This is the international network of financial institutions
and the government, which ascertains the exchange rate of various currencies for global trade.
Thus, international monetary system is a governing body with the help of which various
countries are involved in exchanging currencies with each other.
With the increasing issues in financial market and global trade, it is necessary for the
international monetary system to allocate standard values of the global currencies. However, the
stand of the government might influence the decision-making process of the global monetary
system. For example, any modification in trade policy might influence the global trade of
products and services. International monetary system motivates and boosts the nations for
involving in global trade to enhance their balance of payments along with minimising the trade
deficit. It has developed over time in the form of architectural body with a vision of integrating
the global economy. The international monetary system has made some global achievements that
include the World Bank and the International Monetary Fund.
The impact of international monetary system is to minimise the exchange rate, strengthen
the current account and reduce the financial account. However, if the monetary system is
restrictive, the power of the financial account and the exchange rate would increase, while there
would be decline in current account. By assuming that the monetary policy is not restrictive, the
international monetary system would result in the following in relation to the income effect:
 There would be increase in domestic gross domestic product (GDP).