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BWS came into effect in July______________

BWS came into effect in July______________

Looking for the answer to the question below related to Financial Management ?

BWS came into effect in July______________

 Options:

A. 1939
B. 1945
C. 1944
D. 1970

The Correct Answer Is:

  • C. 1944

The correct answer is C. 1944.

Why C (1944) is the Correct Answer:

The abbreviation “BWS” typically refers to the “Bretton Woods System,” which came into effect in July 1944. The Bretton Woods Conference, held in Bretton Woods, New Hampshire, USA, was a historic international gathering of delegates from 44 Allied nations during July 1-22, 1944.

The primary goal of this conference was to establish a new international monetary and financial order after World War II to promote economic stability and facilitate post-war reconstruction. Here’s a detailed explanation of why C (1944) is the correct answer:

1. Bretton Woods Conference:

The Bretton Woods Conference was named after the location where it took place. The conference aimed to create a framework for international economic cooperation to prevent the competitive currency devaluations and protectionist policies that had contributed to the Great Depression and global economic instability during the 1930s.

2. Key Agreements:

During the conference, two key agreements were reached: the creation of the International Monetary Fund (IMF) and the International Bank for Reconstruction and Development (IBRD), which later became part of the World Bank Group. These institutions were designed to provide financial stability, promote exchange rate stability, and support economic development.

3. Fixed Exchange Rates:

Under the Bretton Woods System, participating countries agreed to fix their exchange rates to the U.S. dollar, which was itself tied to gold at a fixed rate of $35 per ounce. This established a system of fixed but adjustable exchange rates, where countries could adjust their par values (official exchange rates) only with the approval of the IMF.

4. US Dollar Dominance:

The U.S. dollar emerged as the dominant international reserve currency, and countries held substantial dollar reserves to facilitate international trade and finance. The dollar’s convertibility into gold at a fixed rate made it a reliable anchor for the system.

5. System’s Demise:

The Bretton Woods System played a significant role in the post-war economic recovery and growth, but it faced challenges in the 1960s. By the early 1970s, the system’s viability was in doubt due to inflationary pressures and a growing U.S. trade deficit. In August 1971, President Richard Nixon announced the suspension of the U.S. dollar’s convertibility into gold, effectively ending the Bretton Woods System.

Why the Other Options are Not Correct:

A. 1939:

The year 1939 predates the Bretton Woods Conference and the establishment of the Bretton Woods System. World War II began in 1939, and the conference itself occurred in 1944, during the war’s later stages.

B. 1945:

While the year 1945 is associated with the end of World War II, the Bretton Woods System was already established in July 1944, a year before the war’s conclusion.

D. 1970:

The year 1970 marks a period after the demise of the Bretton Woods System, which occurred in 1971 when President Nixon suspended the dollar’s convertibility into gold. By 1970, the international monetary system had transitioned to a system of floating exchange rates, in which currencies fluctuate freely in response to market forces.

In summary, the correct answer is C (1944) because the Bretton Woods System, often referred to as “BWS,” came into effect during the Bretton Woods Conference in July 1944.

This system had a significant impact on the post-war global economy and laid the foundation for international monetary cooperation, exchange rate stability, and the dominance of the U.S. dollar in the international financial system. The other options are not correct because they do not correspond to the historical timing of the Bretton Woods Agreement.

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