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An exchange rate regime is a way a monetary authority of a country or currency union manages the currency about other currencies and the foreign exchange market.It is closely related to monetary policy and the two are generally dependent on many of the same factors, such as economic scale and openness, inflation rate, the elasticity of the labor market, financial market development, and ...
A fixed exchange rate, often called a pegged exchange rate, is a type of exchange rate regime in which a currency's value is fixed or pegged by a monetary authority against the value of another currency, a basket of other currencies, or another measure of value, such as gold or silver. There are benefits and risks to using a fixed exchange rate ...
The spot exchange rate is the current exchange rate, while the forward exchange rate is an exchange rate that is quoted and traded today but for delivery and payment on a specific future date. In the retail currency exchange market, different buying and selling rates will be quoted by money dealers.
Exchange rates can be influenced by a range of factors, including economic conditions such as interest and inflation rates and political events such as wars or changes of government.
2. Interest rates. Interest rates play a major role in a currency’s value and are an essential part of a country’s monetary policy. Governments often adjust interest rates to manage inflation ...
According to their degree of flexibility, post-Bretton Woods-exchange rate regimes are arranged into three categories: Fixed-rate regime: currency unions, dollarized regimes, currency boards and conventional currency pegs; Intermediate regimes: horizontal bands, crawling pegs and crawling bands; Flexible regimes: managed and independent floats
In a fixed exchange rate regime, only a decision by a country's government (specifically, its central bank) can alter the official value of the currency. For example, suppose a government has set 10 units of its currency equal to one US dollar. To revalue, the government might change the rate to 9.9 units per dollar.
[4]: 5, 6 In their 2005 meeting on foreign exchange market intervention, central bank governors had noted that, "Many central banks would argue that their main aim is to limit exchange rate volatility rather than to meet a specific target for the level of the exchange rate". Other reasons cited (that do not target the exchange rate) were to ...