Foreign exchange market
by business & economics research advisor, from the library of congress

in 1971, u. s. dollars were no longer exchanged for gold; and in 1973, the floating exchange rate system that governs the fx market today was put into place. now, all currencies are valued by the market forces of supply and demand. since the abandonment of the gold standard, the fx market has become an important part of international economics. with the advent of floating exchange rates, the foreign exchange market has become unregulated. no institution sets rules for trading, and it is not under the supervision of any international organization. when necessary, governments and central banks often work together to restore stability to the fx market. foreign exchange and international trade are closely connected. together, they affect the economic situation of people throughout the world.
currently, how are foreign exchange rates established?
(a)

Suppose the marginal damage and marginal benefit curves in a polluted neighborhood are md = p/3 and mb = 4 – p. also, suppose that transactions costs are low, so that the consumers and the firm can bargain. we saw that in this case, the socially-optimal level of pollution is achieved. start by computing the socially-optimal p. then, for each of the following cases, compute the amount of money transferred through the bargaining process, and indicate who pays whom (i.e., whether consumers pay the firm, or vice versa). also, compute the gains to each party relative to the status quo (i.e., the starting point of the bargaining process).a)consumers have the right to clean air; firm is dominant in the bargaining process.b)consumers have the right to clean air; consumers are dominant in the bargaining process.c)firm has the right to pollute; firm is dominant in the bargaining process.d)firm has the right to pollute; consumers are dominant in the bargaining proces