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European Monetary System

                What Is The European Monetary System

European monetary system (EMS) was set up in 1979 with an aim to combine the currencies of the European countries to reduce the trade barrier due to currency fluctuations and stabilize those changes and carry out efficient trade in the European market.

Exchange Rate Mechanism (ERM)

ERM is based on a parity grid mechanism" that place an upper and lower limit on the possible exchange rates between each pair of member currencies. In a parity grid mechanism, each country is obliged to intervene whenever its exchange rates reach the upper (or) lower limit against any other

The European Currency Unit (ECU)

The ECU is a basket currency. based on a weighted average of the currencies of member countries of the European Union. The weights are based on each country's relative size of GNP and on each member's share of intra-European
Union Trade. The ECU values vary over time as the member current float jointly with respect to the US Dollar and other non-members currencies. The ECU serves as the accounting unit of EMS and helps in the working of the exchange rate mechanism.

The European Monetary Cooperation Fund

Like the International Monetary Fund (IMF) the EMS has its own institutional setup for monetary cooperation. Member countries extend credit to each other for the purpose of carrying out exchange market intervention through the
European Monetary Cooperation Fund (EMCF). The EMCF gives various short term and medium-term credit facilities depending upon the deficit country's needs. Very short term financing is granted for 45 days, short term monetary support for 3 months renewal up to a famous, medium-term financial assistance for a period of 2 to 5 years. Credit facilities are granted directly by one member country to another country.

MBA 3rd Sem IF (International Finance) Material Pdf Download


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