Define exchange rate systems, Macroeconomics

Assignment Help:

Q. Define Exchange rate systems?

Different nations have different exchange rate systems. The most significant characteristic of an exchange rate system is to what degree the country is trying to control exchange rate.

  • A country can have a totally flexible exchange rate. Exchange rate is then determined solely by demand and supply in a free market without intervention of the government or central bank.
  • A country may have a fully fixed exchange rate by pegging the exchange rate to another currency or to an average of several currencies. A country may, for illustration, decide that one unit of its currency would be exchanged for exactly 0.2 euro. One euro would then cost 5 of the domestic currency.
  • A country can also have an exchange rate system in between these two extremes, known as a 'managed float'. In this system central bank just intervenes under special situations when it wants to influence exchange rate one way or other.
  • A country can also be part of a monetary union where all countries in the union share the same currency. There is then no exchange rate between countries in the union. The union should itself select an exchange rate system regarding other currencies. The largest monetary union is the EMU, European Monetary Union with its currency the euro. Euro is flexible against other currencies (except those which are pegged to the euro).

The most common exchange rate system in western world during previous century was fixed exchange rate system. Up to 1930s, most currencies were pegged to price of gold (gold standard). After Second World War a new system was created, so-called Bretton Woods system, where every currency in the system was pegged to US dollar (USD). After the collapse of this system in 1970s, many currencies, for instance, USD, have been flexible.


Related Discussions:- Define exchange rate systems

Factors responsible for changes in aggregate demand, Factors Responsible fo...

Factors Responsible for changes in Aggregate Demand The Aggregate Demand curve shows an inverse relationship between the quantity of goods and services demanded and the price l

Indifference curves are straight lines, If the indifference curves are stra...

If the indifference curves are straight lines with slope s, and the budget constraint is given by: x*p1+y*p2 = m, then describe the optimal choice of the consumer.

Cost reduction, Cost Reduction Positive measures to effect a lowering o...

Cost Reduction Positive measures to effect a lowering of costs include:  reducing national insurance contributions (an  ad valorem  tax on employing labor);

Major tenets of kant''s ethical theory, Please answer the question below re...

Please answer the question below relating it to BUSINESS in today's world. What are the major tenents of the ethical theory of Utilitarianism, and how would this theory be appli

What is the value of the swap in terms of both bonds and fra, Suppose that ...

Suppose that the yield curve is flat at 5% per annum with continuous compounding. A swap with a notional principal of $100 million in which 6% is received and six-month LIBOR is pa

Trade policy - summary, TRADE policy: We are now in a position to sum ...

TRADE policy: We are now in a position to sum up our analysis of India's trade policy. First, India's trade policy has always been very intricately related to India's basic de

Calculate the income elasticity and good , Due to the recent downturn in e...

Due to the recent downturn in economic activity, Taz, has seen his hours at work reduced. He used to work 30 hours a week at $13 and hour, but now he works 22 hours. Due to this

#, what cause keynesian unemployment?

what cause keynesian unemployment?

Question, The greater the number of different goods available in an economy...

The greater the number of different goods available in an economy, Question 1 options: a) the less likely it is that a double coincidence of wants will exist, and the less likel

Explain why interest rates are pro-cyclical, Critically explain why interes...

Critically explain why interest rates are pro-cyclical, using the supply and demand for bonds framework.

Write Your Message!

Captcha
Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd