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...
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