Exchange rate regimes vary from fixed to floating systems from "summary" of International Financial Management, Abridged Edition by Jeff Madura
Exchange rate regimes refer to the system used by a country to determine the value of its currency in relation to other currencies. The two main types of exchange rate regimes are fixed and floating systems. In a fixed exchange rate system, the government or central bank sets the value of the currency in relation to a reference currency or a basket of currencies. This fixed rate is maintained through interventions in the foreign exchange market by buying or selling currencies to keep the exchange rate within a narrow band. On the other hand, a floating exchange rate system allows the value of the currency to be determined by market forces of supply and demand. In this system, the exchange rate fluctuates based on factors such as inflation, interest rates, economic growth, and geopolitical events. The government or central bank does not intervene in the foreign exchange market to influence the value of the currency. The choice between a fixed or floating exchange rate regime depends on various factors such as the country's economic stability, inflation rate, trade balance, and exchange rate volatility...
Similar Posts
Set realistic goals and objectives for your trading endeavors
When it comes to trading in the forex market, one of the most important things you can do is to set realistic goals and objecti...
Financial planning is crucial for achieving longterm financial goals
Financial planning is the bedrock upon which long-term financial goals are built. It involves setting specific objectives, crea...
Macroeconomic principles shape economic policy
Macroeconomic principles play a crucial role in shaping economic policy. These principles are the foundation upon which policym...
Social factors play a role in shaping economic development
W. Arthur Lewis emphasizes the significance of social factors in influencing economic development. He underscores that economic...
Economic development refers to improving living standards and reducing poverty
Economic development is all about making things better for people. It's about improving their lives in a way that helps them to...
Government interventions shape business environment
Government interventions play a crucial role in shaping the business environment. These interventions can take various forms, s...
Interest rates are crucial in determining economic outcomes
Interest rates play a significant role in shaping the overall economic landscape. The level of interest rates influences consum...
Balance between saving and investment crucial
The relationship between saving and investment is a fundamental aspect of the economic system. When individuals save money, the...
Comparative advantage drives specialization
The principle of comparative advantage in economics is a powerful concept that explains why individuals, businesses, and countr...
Understanding business cycles is essential for successful market participation
To be successful in the market, one must have a deep understanding of business cycles. Business cycles are fluctuations in econ...
