Exchange rate systems
- Created by: meloakes
- Created on: 31-03-15 15:08
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- Exchange Rates
- Freely Floating: the price of one currency is expressed in terms of another is determined by supply and demand
- FOREX marekt: coming together of buyers and sellers
- Long term capital transactions and Short term capital flows.
- Fixed: one currency has a fixed value compared to another. Usually set by the government
- Reduced uncertainty about the exchange rates
- Reduced cost of trade
- Discipline on domestic firms
- Semi fixed: allows a currency to fluctuate within a permitted band of fluctuation
- Adjustable peg systems: fixed in the short term but can move up and down in the long term
- Managed floating systems: its allowed to float but the central bank will intervene
- Crawling peg systems: exchange rate is fixed but there are small changes
- Exchange rate band systems: floats freely within a permitted band of fluctuation
- Purchasing Power Parity: the exchange rate that equalises the price of a basked of identical goods in two countries. it measures the true value of goods and services it will buy
- Freely Floating: the price of one currency is expressed in terms of another is determined by supply and demand
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