nations engaging in trade have to exchange their currencies following an exchange rate in the international currency market (i.e. American business exporting to Mexico doesn't want to be paid in pesos because that currency cannot be used in the US, so the importer must exchange pesos for US Dollars)
two major types of currency exchange formats
- fixed
  - Bretton Woods system
    - 44 nations met and created this system with the US dollar serving as the reserve currency of he system
    - countries bought and sold dollars to maintain their exchange rates
    - value of the US Dollar fixed at $35 per ounce of gold and was convertible on demand for foreigners holding US dollars
    - dissolved in 1971 as US dollar came under devaluation pressure and gold drained from the nation's reserves
  - International Monetary Fund (IMF)
    - created to supervise the exchange rate practices of member nations and intended to lend money to nations that were unable to meet paument obligations (bailouts)
  - World Bank
    - funded through the sale of bonds
    - loans money to developing nations for economic development
- floating
  - March 1973 a managed, floating exchange rate was established by the major industrial countries
  - managed flat has withstood severe economic upheavals

C.2 Economics, Skill #6- Notes