Financial Markets and Institutions (2-downloads)

anchor currency) so that the exchange rate is fixed in terms of the anchor cur-

rency. In a floating exchange rate regime, the value of a currency is allowed

to fluctuate against all other currencies. When countries intervene in foreign

exchange markets in an attempt to influence their exchange rates by buying and

selling foreign assets, the regime is referred to as a managed float regime (or

a dirty float).

4

The current account balance can also be viewed as showing the amount by which total saving

exceeds private sector and government investment in the United States. Total U.S. saving equals the

increase in total wealth held by the U.S. private sector and government. Total investment equals the

increase in the U.S. capital stock (wealth physically in the United States). The difference between

them is the increase in U.S. claims on foreign wealth.

G L O B A L