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

Classical model, determination of interest rate in classical model

determination of interest rate in classical model

Price elasticity of demand, has determined that the price elasticity of dem...

has determined that the price elasticity of demand for two customer segments (Coach and Business Class) is -1.35 and -2.50. Based on their expectations of profitability, Kashian r

Relationship between the interest rate and the bond price, Relationship bet...

Relationship between the interest rate and the bond price Note that the higher the issue price, the lower the interest rate. In the same way, when the price of a government bon

#GDP, There are three firms in an economy: A, B, and C. Firm A buys $450 wo...

There are three firms in an economy: A, B, and C. Firm A buys $450 worth of goods from firm B and $260 worth of goods from firm C, and produces 260 units of output, which it sells

Fixed unemployment, Is the natural rate of unemployment fixed? Why or why n...

Is the natural rate of unemployment fixed? Why or why not? How are full employment and the natural rate of unemployment related? Is the actual rate of unemployment currently greate

Considering two types of water heaters, A company is considering two types ...

A company is considering two types of water heaters. The associated costs are shown below. The estimated annual cost of operation for oil heaters equals 365 x 41045/EF x Fuel Cost

Data and methodology - macroeconomy analysis, In order to estimate the VAR,...

In order to estimate the VAR, I have firstly to specify the data which will be analysed. As it is my aim to observe the correlations between oil prices and key macroeconomic variab

Current event opportunity, Give an example of a current event opportunity c...

Give an example of a current event opportunity cost that includes graphs

Macroeconomic Analysis, Derive the conditions for steady state in the Solow...

Derive the conditions for steady state in the Solow model. What are its implications? In what respects is the golden rule different from the steady state?

Consumption function in the as-ad model, Q. Consumption function in the AS-...

Q. Consumption function in the AS-AD model? Consumption. Suppose that P increases by say 10% whereas real GDP (Y) is constant. Nominal GDP and nominal national will now have

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