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

Find the npv and the irr determine cash flows, The Research and Development...

The Research and Development Division of your company has just developed a new gaming system called the Zed Box.  The R&D Division spent $800,000 developing this product and the Ma

Purposes economists disagree and using models of economics, Explain the pur...

Explain the purposes economists disagree and using models of economics. Using Models of Economics: a. Positive economics b. Normative economics A forecast is an easy p

Steps to real wage rates to fall, Steps to real wage rates to fall Wage...

Steps to real wage rates to fall Wage 'stickiness' or wage inflexibility may stop the real wage rate falling to the full-employment wage rate. Stickiness or inflexibility is ca

What are the potential advantages of economic growth, What are the potentia...

What are the potential advantages of economic growth? The potential advantages of growth include • More goods and services are accessible to satisfy more want and requireme

How much money can banks create, How much money can banks create? Does...

How much money can banks create? Does this mean that banks can create an unlimited amount of money? The answer is no - that would require them to lend an unlimited amount of m

Macroeconomic analysis, Sims (1980) introduced an exciting and ground-break...

Sims (1980) introduced an exciting and ground-breaking new framework which would prove to be extremely insightful for macroeconomic analysis. This is known as vector autoregression

Proctor and gamble, Bayer Schering Pharma AG, Germany owns the Alka-Seltzer...

Bayer Schering Pharma AG, Germany owns the Alka-Seltzer, which was launched in 1931 and was meant for relief of minor aches, pains, inflammation, fever, headache, heartburn, sour s

Wholesale prices, Wholesale Prices, Consumer Prices and Inflation   From...

Wholesale Prices, Consumer Prices and Inflation   From the man on the street to the highest policy makers, the behavior of prices is of intimate concern. Prices determine the pu

Summary of the cross model, Summary of the cross model The below list...

Summary of the cross model The below list summarizes the cross model and associates it to classical model:  Labor Market: Real wages W/P is exogenous in cross model

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