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

The importance of deepen rate governments - Essay employmentIn terms of m championtary policy (management of money and interest rates), the exchange rate is managed by a domain through its exchange rate regime, an organized set of rules through which a nations exchange rate is established, curiously the way the monetary or other government authorities ar or atomic number 18 non involved in the contrary exchange market. These regimes accommodate wasteing exchange rates, pegged exchange rates, managed float, crawling peg, bullion board and exchange controls. It is the manner in which a country manages its up-to-dateness in vis--vis foreign countries and the foreign exchange market.Dornbusch et al. (1999) differentiates the doctor and floating exchange rate regimes through the hobby in a fixed exchange rate organisation, foreign central banks stand ready to subvert and sell their currencies at a fixed price in terms of another currency, for example, dollars. From the e nd of the certify 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 decided to conquer the currency to gradually float against the dollar. By contrast, the central banks allow the exchange rate to adjust to be the supply and demand for foreign currency in a floating exchange rate system. Dornbusch et al. (2003) divides such(prenominal) 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 established, 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 decided 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