The exchange rate regime is the way a country manages its currency in respect to foreign currencies and the foreign exchange markets. It is closely related to monetary policy and the are generally dependent on many of the same factors. The basic types are a floating exchange rate, where the dictates the movements of the exchange rate a pegged float, where the central bank keeps the rate from deviating too far from target band or value, and the fixed exchange rate, which ties the currency to another currency, mostly more widespread currencies such as the U.S. dollar or the euro.
Floating rates are the most common exchange rate regime today. For example, the dollar, euro, yen, and British pound all float. However since central banks frequently intervene to avoid excessive appreciation or depreciation, these regimes are often called managed float or a dirty float
Here, the currency is pegged to some band or value, either fixed or periodically adjusted. Pegged floats are:
• Crawling bands: the rate is allowed to fluctuate in a band around a central value, which was adjusted periodically. This is done at a preannounced rate or in controlled way following economic indicator.
• Crawling pegs : Here, the rate itself is fixed, and adjustment as above
• Pegged with horizontal bands: The currency is allowed to fluctuate in a fixed band ( bigger than 1% around a central rate.
Fixed rates are those that have direct convertibility towards another currency. In case of a separate currency, also known as a currency board arrangement, the domestic currency is backed one to one by foreign reserves. A pegged currency with very small bands (<1%) and countries that have adopted another country’s currency and abandoned its own fall under this category. In classic feedback, the response to one hormone triggers release https://writemyessay4me.org/ of the antagonistic hormone, minimizing fluctuations in the concentration of ca2+ levels in the blood