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

State the both -cyclical and classical unemployment, State the both -Cyclic...

State the both -Cyclical and Classical unemployment Cyclical unemployment Unemployment because of a recession. Classical unemployment Unemployment because of

Probability that the stocks return, Suppose that an individual stock's retu...

Suppose that an individual stock's return is normally distributed with a mean of 11% and a standard deviation of 5%. What is the probability that the stock's return will be less th

Interest rates and inflation, Q. Interest rates and inflation? Assume y...

Q. Interest rates and inflation? Assume you have 1 million on 1st January 2008. A basket of services and goods similar to the CPI basket costs 100,000. You can then purchase ex

Calculate competitive equilibrium quantity, Assume a competitive industry w...

Assume a competitive industry with two hospitals. The hospitals compete in price (such that P = MC ), face the inverse demand curve =10 - Q , and have a constant marginal cost of

How growth are improved living standards, How growth are improved living st...

How growth are improved living standards The two main benefits of growth are improved living standards and technological advancement. As an economy grows, the output of

Explain the classical growth theory, Q. Explain the classical growth theory...

Q. Explain the classical growth theory? Production function won't provide us with a theory or explanation of growth. It's only a convenient tool that helps us breaking down gro

Right to sell blood, Singer suggests that although the right to sell blood ...

Singer suggests that although the right to sell blood does not threaten the formal right to give blood, it is incompatible with "the right to give blood, which cannot be bought, wh

Explain augmented saving, Augmented Saving An alternative way of determ...

Augmented Saving An alternative way of determining equilibrium  GDP  is to find the level of income where the sum of desired injections equals the sum of desired leakages. Desi

Employment, the production of 200 units of consumer goods and 300 units of ...

the production of 200 units of consumer goods and 300 units of capital goods : a) indicates full employment b) may be a result of unemployment c) may be impossible for now d)

The budget line, The Budget Line: The Consumer Constraints The consumer...

The Budget Line: The Consumer Constraints The consumer would like to maximize his satisfaction by reaching the highest possible indifference curve. But in the process, he faces

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