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CMA Final · Strategic Financial Management · The International Financial Environment

Under the Bretton Woods system that operated from 1944 until the early 1970s, which arrangement applied to member currencies?

Bretton Woods used pegged exchange rates in which member currencies were fixed to the US dollar, and the dollar was convertible into gold at a fixed price. Currencies were not directly tied to gold, and floating rates only emerged after the system collapsed in the early 1970s.

  1. AFree floating of all currencies with no official intervention
  2. BPegged exchange rates with the US dollar convertible into gold at a fixed priceCorrect
  3. CEvery currency was fixed directly to gold with no role for the dollar
  4. DA common single currency issued by the IMF

Explanation

Under Bretton Woods, member countries pegged their currencies to the US dollar within narrow bands, and the dollar was convertible into gold at a fixed price of US$35 per ounce. Option C is wrong because currencies were linked to gold only through the dollar. Floating rates became general only after the system collapsed.

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