The importance of exchange rate regimes Essay Example | Topics and Well Written Essays - 2500 words

The importance of exchange grade regimes - Essay ExampleIn name of financial policy (management of money and interest roams), the exchange rate is managed by a country with its exchange rate regime, an organized set of rules through which a nations exchange rate is established, especially the way the fiscal or other government authorities argon or are not involved in the foreign exchange market. These regimes include floating exchange rates, pegged exchange rates, managed float, crawling peg, silver board and exchange controls. It is the manner in which a country manages its currency in vis--vis foreign countries and the foreign exchange market.Dornbusch et al. (1999) differentiates the fixed and floating exchange rate regimes through the following in a fixed exchange rate system, foreign central banks stand ready to buy and sell their currencies at a fixed price in equipment casualty of another currency, for example, dollars. From the end of the aid world war up to 1973, ma jor countries had fixed exchange rates against one another. Presently, there are still those that use the system while others favor to use the floating exchange rate. Recent developments include the revaluation of the Chinese yuan in July 2005 in which Chinese monetary authorities decided to rent the currency to gradually float against the dollar. By contrast, the central banks allow the exchange rate to adjust to equate the supply and enquire for foreign currency in a floating exchange rate system. Dornbusch et al. (2003) divides such exchange rate regime into three more subsystems.... Mishkin (2003) defines the exchange rate as the price of one currency in terms of another (say euros per dollar) and it is in the foreign exchange market that they are determined. In terms of monetary policy (management of money and interest rates), the exchange rate is managed by a country through its exchange rate regime, an organized set of rules through which a nations exchange rate is establi shed, especially the way the monetary or other government authorities are or are not involved in the foreign exchange market. These regimes include floating exchange rates, pegged exchange rates, managed float, crawling peg, currency board and exchange controls. It is the manner in which a country manages its currency in vis--vis foreign countries and the foreign exchange market.Dornbusch et al. (1999) differentiates the fixed and floating exchange rate regimes through the following in a fixed exchange rate system, foreign central banks stand ready to buy and sell their currencies at a fixed price in terms of another currency, for example, dollars. From the end of the second world war up to 1973, major countries had fixed exchange rates against one another. Presently, there are still those that use the system while others prefer to use the floating exchange rate. Recent developments include the revaluation of the Chinese yuan in July 2005 in which Chinese monetary authorities decide d to allow the currency to gradually float against the dollar. By contrast, the central banks allow the exchange rate to adjust to equate the supply and demand for foreign currency in a floating exchange rate system.1 Dornbusch et al. (2003) divides such exchange rate regime into