Currency Exchange Rates
Currency exchange rate denote the rate at which one currency can be converted or exchanged to another. Different nations adopt different types of strategies to regulate the exchange rate of their currencies. There were many changes in the regulation of exchange rate in last century, from gold standard to free floating and the involvement of IMF.
There are mainly two types of currency exchange rates as fixed exchange rate and floating exchange rate. In fixed or pegged exchange rate, the government of one nation through the central bank maintains a steady exchange rate of its own currency with others. The central bank buys and sells foreign currencies in forex markets to maintain the steady exchange rate. Although fixed exchange rate is very good to maintain inflation/deflation levels, it may also lead to development of black-market in the country and devaluation of the currency.
On the other hand in floating or self-correcting exchange rate the rates are ever changing with supply and demand of currencies, global and local news, government policies etc. The central bank and the government usually not have any active part in change in exchange rate of currencies but may have to perform substantial tasks to maintain inflation or deflation levels.
There are mainly two types of currency exchange rates as fixed exchange rate and floating exchange rate. In fixed or pegged exchange rate, the government of one nation through the central bank maintains a steady exchange rate of its own currency with others. The central bank buys and sells foreign currencies in forex markets to maintain the steady exchange rate. Although fixed exchange rate is very good to maintain inflation/deflation levels, it may also lead to development of black-market in the country and devaluation of the currency.
On the other hand in floating or self-correcting exchange rate the rates are ever changing with supply and demand of currencies, global and local news, government policies etc. The central bank and the government usually not have any active part in change in exchange rate of currencies but may have to perform substantial tasks to maintain inflation or deflation levels.
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