Before the days of the foreign exchange market, the world depended on the gold standard to determine the value of goods and services. This article will describe in more detail the gold standard, the positive and negative aspects of its use and will further summarize the main functions of the world's major foreign exchange markets. The gold standard was a monetary system used by many countries. in order to determine the value of national currencies in relation to a specific quantity of gold. The value of money, bank deposits and notes was transformed into gold in a specific amount. Britain was the first country to adopt the gold standard in 1816, followed by the United States. From 1834 to 1933, the price of gold in the United States was $20.67 per ounce (Bordo, 2002). However, in 1933, U.S. President Franklin D. Roosevelt ended the gold standard by prohibiting the possession of gold by anyone except for the purpose of owning or making jewelry (Moffatt, 2008). This was the beginning of the Bretton Woods system. Under the Bretton Woods system, countries agreed to settle their international balances by converting their deficits into US dollars at a fixed exchange rate of $35 per ounce (Bordo, 2002). This monetary system only lasted until 1971, when President Richard Nixon ended the gold trade completely (Moffatt, 2008). Since then, the gold standard has not been used by any major economy. The most important advantage of using the gold standard was that it ensured a low level of inflation. According to Michael Bordo (2002), “whatever other problems there were with the gold standard, persistent inflation was not one of them. Between 1880 and 1914, a period when...... middle of paper...... exchanges (Forex Capital, 2000). The exchange rate influences the decisions made by businesses and individuals who choose to participate in transactions. This is a very important aspect of foreign exchange as it also influences economy prices, consumer prices, interest rates, growth of economies and investment decisions.ReferencesBordo, Michael D ., (2002). Gold standard. The Concise Encyclopedia of Economics. Library of Economy and Freedom. Retrieved September 28, 2008 from http://www.econlib.org/library/Enc/GoldStandard.htmlForex Capital Management., (2000). Introduction to foreign exchange. Retrieved September 23, 2008 from http://www.forexcapital.com/introfx.htm Moffatt, Mike. (2008). Gold Standard versus Fiat Money. About.com Economy. Retrieved September 23, 2008 from http://economys.about.com/cs/money/a/gold_standard_2.htm