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Friday, May 1, 2009

Exchange Rate Mechanism (ERM

Exchange Rate Mechanism (ERM), central component of the 1979 European Monetary System (EMS) designed to maintain monetary stability among participating members of the European Union (EU).


The specific purpose of the ERM was to limit fluctuations in currency exchange rates among EMS members by linking these rates to the unit of account of the EU, the European Currency Unit (ECU, which became the euro in 1999).


The exchange rates of the participating countries were formally established in relation to the ECU and were allowed to fluctuate only by small amounts. In practice, however, the German currency, the deutsche mark, was the fulcrum of the system as the strongest European currency.

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