ABSTRACT
The preceding case shows that a country’s currency value is not always stable, and therefore, its exchange rate with other countries’ currencies can change. International businesses operate in an uncertain environment in which exchange rates have been increasingly volatile over the past quarter century. Volatile exchange rates increase risk for international companies. To manage foreign exchange risk, management must first understand how the international monetary system works. As the opening case demonstrates, there are many new terms associated with this system (e.g., peg or crawl policies, nominal or real exchange rate). This chapter is designed to explain these concepts and related monetary system and financial markets.
