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HomeHomework HelpeconomicsExchange Rate Regimes

Exchange Rate Regimes

The term 'Exchange Rate Regimes and Stability' refers to the frameworks that govern how a country's currency value is determined relative to other currencies, which can range from fixed to floating systems, and the degree to which these systems maintain economic stability and predictability in international trade and investment. Stability in this context implies the ability of the exchange rate regime to withstand external shocks and avoid excessive volatility that could disrupt economic activities.

intermediate
3 hours
Economics
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Overview

Exchange rate regimes play a crucial role in the global economy by determining how currencies are valued against one another. Understanding these regimes helps in grasping how international trade operates and how economic stability is maintained. Different regimes, such as fixed and floating rates, ...

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Key Terms

Fixed Exchange Rate
A currency system where the value of a currency is tied to another major currency.

Example: The Hong Kong dollar is pegged to the US dollar.

Floating Exchange Rate
A currency system where the value is determined by market forces without direct government control.

Example: The value of the US dollar fluctuates based on supply and demand.

Currency Peg
A policy where a country maintains its currency's value at a fixed rate to another currency.

Example: The Saudi riyal is pegged to the US dollar.

Exchange Rate Volatility
The degree of variation in the exchange rate over time.

Example: High volatility can lead to uncertainty in international trade.

Monetary Policy
The process by which a central bank manages the money supply and interest rates.

Example: The Federal Reserve adjusts interest rates to influence the economy.

Inflation Rate
The rate at which the general level of prices for goods and services rises.

Example: A high inflation rate can decrease currency value.

Related Topics

International Trade
The exchange of goods and services between countries, influenced by exchange rates.
intermediate
Monetary Policy
The actions of a central bank to control the money supply and interest rates.
intermediate
Global Financial Markets
The marketplace for trading financial assets, affected by exchange rate movements.
advanced

Key Concepts

fixed exchange ratefloating exchange ratecurrency pegexchange rate volatility