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

Component of balance payments, Component of balance payment: BOP is a ...

Component of balance payment: BOP is a statement  that summarises all the economic transactions between residents (individuals, companies and other organisations) of the home

Choice amonga lottery, You have a choice between a lottery lump sum payout ...

You have a choice between a lottery lump sum payout of $10,000,000 today or a series of 25 annual annunity payments the first payment will be one year from today ad a discount rate

Difference between accounting profit and economic profit, What is the diffe...

What is the difference between accounting profit and economic profit? Accounting Profit: The accounting profit of a business is the revenue of business minus the explicit

Explain production as an income generating activity, Explain production as ...

Explain production as an income generating activity. What are the principal difference among government purchases of goods & service and transfer payments? Why are in

Codinal theory - consumer choice concernin utility, Ordinal Theory: A...

Ordinal Theory: A Short Note In ordinal approach, utility is measured ordinally i.e., qualitatively (not numerically or quantitatively). Alternatively, consumer can rank her

Influx of foreign labor, If a nation were to experience an influx of foreig...

If a nation were to experience an influx of foreign labor into the market for corn production, the production possibilities frontier for the nation would: a. shift inward due to

Pros and cons of commercial transactions, Examine the pros and cons of comm...

Examine the pros and cons of commercial transactions in blood from the egoistic, the utilitarian, and the Kantian perspectives

Relative cost-effectiveness, Stephanie Robbins is the Three Hills Power Com...

Stephanie Robbins is the Three Hills Power Company management analyst assigned to simulate maintenance costs. In Section 14.6 we describe the simulation of 15 generator breakdowns

How can we determine fixed exchange rate, How can we determine fixed exchan...

How can we determine fixed exchange rate If a nation has a fixed exchange rate (say against a specific currency), the government or central bank may change this fixed exchange

Illustrate the overview and importance of macroeconomics, Illustrate the ov...

Illustrate the overview and importance of macroeconomics? After familiar with this illustration, able to know: a. An overview of macroeconomics is the study about the econom

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