Foreign Exchanges

INB 205

All That Glitters is Not Gold - Foreign Exchanges, yes, an outdated phrase but it provides a starting point to understanding the complexities of our subject today. Let us open with the gold standard. At one time, as stated by the renowned Ben Bernanke (Bernanke, 2004 ),

United States and the great majority of other nations were on the

gold standard, a system in which the value of each currency is

expressed in terms of ounces of gold. Under the gold standard,

central banks stood ready to maintain the fixed values of

their currencies by offering to trade gold for money at the legally

determined rate of exchange.

In the United States the gold reserve was primarily at Fort Knox, Kentucky, however at this time there is speculation that since going off the...