BANKING AFFAIRS

Detailed explanation-1: -A nation on the gold-exchange standard is thus able to keep its currency at parity with gold without having to maintain as large a gold reserve as is required under the gold standard. The gold-exchange standard came into prominence after World War I because of an inadequate supply of gold for reserve purposes.

Detailed explanation-2: -Under the system of gold standards, for instance, the rate of foreign exchange is determined in terms of the gold content of the two given currency units. This is referred to as mint parity. Thus, if currency A contains 10 grams of gold and contains 5 grams of gold, then rate of exchange is: 1A = 2B.

Detailed explanation-3: -The Gold Standard was a system under which nearly all countries fixed the value of their currencies in terms of a specified amount of gold, or linked their currency to that of a country which did so.

Detailed explanation-4: -The gold standard is a monetary system where a country’s currency or paper money has a value directly linked to gold. With the gold standard, countries agreed to convert paper money into a fixed amount of gold. A country that uses the gold standard sets a fixed price for gold and buys and sells gold at that price.