The Economics of Financial Markets

How exchange rate policies and systems characterize the countries of South America:
Exchange rate plays a key role in development of South American economy. The exchange rate has enormously influenced the economy of these regions particularly from 1960’s when the economy was mostly characterized by import substitution, and 1970’s when foreign debt was significantly increased. Exchange rate has been very instrumental in formulation of government policies in these regions. In fact, “many analysts regard exchange rate policy as a major determinant of other economical outcomes, such as adjustment to the oil shocks of the 1970’s and the debt the debt crisis of the 1980’s” (Frieden & Ernesto, 2010) Generally speaking, there were four principal categories of exchange rate regimes in Latin America as discussed by Kiguel Alberto:
(i) Countries with fixed exchange rates where devaluations are a rare event (e.g. Venezuela till 1982), (ii) countries with fixed exchange rates but with periodic devaluations (e.g. Chile, Colombia, Peru and Uruguay in the fifties and sixties), (iii) countries with…



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