fixed exchange rate

Business

(noun)

Sometimes called a pegged exchange rate, a type of exchange rate regime wherein a currency's value is matched to the value of another single currency or to a basket of other currencies, or to another measure of value, such as gold.

Related Terms

Economics

(noun)

A system where a currency's value is tied to the value of another single currency, to a basket of other currencies, or to another measure of value, such as gold.

Related Terms

Examples of fixed exchange rate in the following topics:

  • Fixed Exchange Rates

    • A fixed exchange rate is a type of exchange rate regime where a currency's value is fixed to a measure of value, such as gold or another currency.
    • A fixed exchange rate, sometimes called a pegged exchange rate, is a type of exchange rate regime where a currency's value is fixed against the value of another single currency, to a basket of other currencies, or to another measure of value, such as gold.
    • A fixed exchange rate regime should be viewed as a tool in capital control.
    • China is well-known for its fixed exchange rate.
    • Explain the mechanisms by which a country maintains a fixed exchange rate

  • Fixed Exchange Rates

    • Central banks in several countries established a fixed exchange rate with a strong currency, such as the U.S. dollar or euro.
    • A fixed exchange rate is a pegged exchange rate.
    • We expand the supply and demand analysis to include a fixed exchange.
    • Thus, it cannot support an independent monetary policy because the central bank must maintain the fixed exchange rate.
    • Consequently, both countries could impose a fixed exchange rate while the central bank can pursue an independent monetary policy.

  • Exchange Rate Systems

    • The three major types of exchange rate systems are the float, the fixed rate, and the pegged float.
    • A fixed exchange rate system, or pegged exchange rate system, is a currency system in which governments try to maintain a currency value that is constant against a specific currency or good.
    • In a fixed exchange-rate system, a country's government decides the worth of its currency in terms of either a fixed weight of an asset, another currency, or a basket of other currencies.
    • Crawling pegs:A crawling peg is an exchange rate regime, usually seen as a part of fixed exchange rate regimes, that allows gradual depreciation or appreciation in an exchange rate.
    • The system is a method to fully utilize the peg under the fixed exchange regimes, as well as the flexibility under the floating exchange rate regime.

  • Managed Float

    • Managed float regimes are where exchange rates fluctuate, but central banks attempt to influence the exchange rates by buying and selling currencies.
    • Managed float regimes, otherwise known as dirty floats, are where exchange rates fluctuate from day to day and central banks attempt to influence their countries' exchange rates by buying and selling currencies.
    • Some economists believe that in most circumstances floating exchange rates are preferable to fixed exchange rates.
    • However, pure floating exchange rates pose some threats.
    • A floating exchange rate is not as stable as a fixed exchange rate.

  • International Exchange of Money

    • For several centuries the developed world operated under a fixed exchange rate system based on the gold standard.
    • After the depression in the 1930s, many systems were tried, but the developed world chose to switch back to a fixed exchange rate system after WW II.
    • In finance, an exchange rate (also known as the foreign-exchange rate, forex rate or FX rate) between two currencies is the rate at which one currency will be exchanged for another.
    • The spot exchange rate refers to the current exchange rate.
    • In finance, an exchange rate (also known as the foreign-exchange rate, forex rate or FX rate) between two currencies is the rate at which one currency will be exchanged for another.

  • Chapter Questions

    • Moreover, you expect the U.S. dollar euro exchange rate to fluctuate 15%.
    • Your company uses the spot exchange rate, which equals $0.9 / 1 CD.
    • Your company enters a three-month forward rate that fixes the exchange rate to $1 / 1 CD
    • Your company decides to use the spot exchange rate, which equals $1 / 11 pesos.
    • Your company enters a forward contract that fixes the exchange rate to $1 / 12 pesos.

  • Exchange Rate Policy Choices

    • A free floating exchange rate increases foreign exchange volatility, which can be a significant issue for developing economies .
    • Flexible exchange rates serve to adjust the balance of trade.
    • Under fixed exchange rates, this automatic re-balancing does not occur.
    • The developing countries, marked in light blue, may prefer a fixed or managed exchange rate to a floating exchange rate.
    • Explain the factors countries consider when choosing an exchange rate policy

  • Exchange Rates

    • A foreign currency exchange rate between two currencies is the rate at which one currency will be exchanged for another.
    • Exchange rates are determined in the foreign exchange market.
    • For example, the currency may be free-floating, pegged or fixed, or a hybrid.
    • A movable or adjustable peg system is a system of fixed exchange rates, but with a provision for the devaluation of a currency.
    • China was not the only country to do this; from the end of World War II until 1967, Western European countries all maintained fixed exchange rates with the US dollar based on the Bretton Woods system.

  • A Random Walk

    • Value of the spot exchange rate today is st, which equals yesterday's exchange rate, st-1, plus a random disturbance, et.
    • We assume the random disturbance is distributed normally with a mean of zero with a fixed standard deviation.
    • For example, if the U.S. dollar-euro exchange rate equals $1.3 per euro today, then we expect the exchange rate to be $1.3 per euro tomorrow plus a random fluctuation.
    • We show the monthly U.S. dollar-euro exchange rate in Figure 1.
    • First difference of the U.S. dollar per euro exchange rate

  • Spot Rates, Forward Rates, and Cross Rates

    • Spot & forward rates are settlement prices of spot & forward contracts; cross rates are the exchange rate between two unofficial currencies.
    • The result is the spot curve, which exists for fixed income securities.
    • A cross rate is the currency exchange rate between two currencies, both of which are not the official currencies of the country in which the exchange rate quote is given in.
    • For example, if an exchange rate between the euro and the Japanese yen was quoted in an American newspaper, this would be considered a cross rate in this context, because neither the euro or the yen is the standard currency of the U.S.
    • However, if the exchange rate between the euro and the U.S. dollar were quoted in that same newspaper, it would not be considered a cross rate because the quote involves the U.S. official currency.