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Robert Z Aliber describes international finance as a game between national policymakers and private market participants National policy makers are charged with managing their home economics and yet they make international commitments hence the dual objectives causes inconsistencies in national policies leading to inevitable changes in exchange rate Levich 2001 The private sector perceives the changes in exchange rate as both risk and opportunity for firms and individuals Another aspect of game described by Robert A Aliber is the differences in regulatory policies across countries regulatory differences offer their own incentives private market participants Some regulatory differences are valuable because they have encouraged financial innovations that improve risk sharing and financial efficiency as well as lower the cost of financial intermediation Over the last three decades financial markets around he world have been transformed Levich 2001 Before World War I the financial system was described as the gold standard During this time countries set par value for their currency in terms for gold A gold standard is the system of fixed exchange rates in which the value of currencies was fixed relative to the value of gold and gold was used as the primary reserve asset Colander 1987 From 1947 to 1971 the international monetary agreements were known as the Bretton Woods system Changes in the system have caused crisis over the relative values of different national monies Thus the move to the gold exchange standard reflected a prospective shortage of gold in the 1920s the gold exchange standard failed in the Great Depression of the 1930s because of too-frequent changes in exchange rates And the Bretton Woods system collapsed in 1971 because it was unable to cope with the large payments imbalances generated by the inflation in the United States By the end of 1980 the major industrial countries have taken steps to coordinate economic policies placing target ranges on currency values Levich 2001 But in the latter half of 1990s abrupt change
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