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In ____________ president Nixon announced that dollar would no longer be convertible into gold.

In ____________ president Nixon announced that dollar would no longer be convertible into gold.

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

In ____________ president Nixon announced that dollar would no longer be convertible into gold.

 Options:

A. 1944
B. 1945
C. 1970
D. 1971

The Correct Answer Is:

  • D. 1971

The correct answer is D. 1971. In 1971, President Richard Nixon announced a series of economic measures, including the suspension of the convertibility of the US dollar into gold. This significant event, often referred to as the “Nixon Shock,” marked the end of the Bretton Woods System and had profound implications for the international monetary system.

Let’s explore in detail why this answer is correct and why the other options, A, B, and C, are not:

D. 1971 –

This option is correct because on August 15, 1971, President Richard Nixon delivered a televised address to the nation in which he announced a set of economic measures, the most notable of which was the suspension of the US dollar’s convertibility into gold.

Prior to this announcement, under the Bretton Woods System established in 1944, the US dollar was pegged to gold at a fixed rate of $35 per ounce. Nixon’s decision to abandon this gold standard was a pivotal moment in the history of international finance and led to the transition to a system of floating exchange rates.

Now, let’s examine why the other options are not correct:

A. 1944 –

This option is incorrect because the Bretton Woods Conference, which established the Bretton Woods System, occurred in 1944. However, the suspension of the US dollar’s convertibility into gold did not take place in 1944. Instead, it happened nearly three decades later, in 1971.

B. 1945 –

This option is incorrect for the same reason as option A. While the Bretton Woods Conference took place in 1944 and the system was designed during that time, the actual announcement of the suspension of the US dollar’s convertibility into gold occurred in 1971, not 1945.

C. 1970 –

This option is incorrect because the actual announcement of the suspension of the US dollar’s convertibility into gold took place in 1971, not 1970. In the late 1960s and early 1970s, the United States faced economic challenges, including trade deficits and inflation, which led to the decision to abandon the gold standard.

The Nixon Shock, as it came to be known, was a response to economic pressures that the United States was experiencing at the time. The US was running large trade deficits, and foreign central banks held significant reserves of US dollars, which were redeemable for gold at the fixed rate of $35 per ounce. This led to concerns about the United States’ ability to maintain the convertibility of the dollar into gold.

As a result, President Nixon, on the advice of his economic team, announced a series of measures to address the economic challenges, with the most consequential being the suspension of the dollar’s convertibility into gold.

This decision effectively ended the Bretton Woods System and ushered in an era of floating exchange rates, where currencies’ values are determined by supply and demand in the foreign exchange markets.

The end of the Bretton Woods System had far-reaching consequences for the international monetary system, including increased exchange rate volatility and the adoption of flexible exchange rates by many countries. It marked a shift away from the fixed exchange rate system that had been in place since the end of World War II.

In conclusion, President Nixon announced the suspension of the US dollar’s convertibility into gold in 1971, making option D the correct answer. This event, known as the Nixon Shock, was a pivotal moment in the history of international finance and marked the end of the Bretton Woods System.

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