ZAMBIA DEVELOPING COUNTRY TRADE

Exchange Rate



Exchange Rate

Exchange rate

The rate or exchange rate between two currencies is the rate ratio or relationship between the value of one or the other. This rate is an indicator that expresses how many units of one currency needed to obtain one unit of the other. The concept of "exchange" is due to its characteristics such as convertibility. The degree of convertibility of the currency determined by the mechanism of state regulation of foreign exchange transactions.

Fixed exchange rate

The fixed exchange rate is the exchange rate regime, under which the Central Bank sets the country's foreign exchange rate at a certain level (or within a certain range) to ensure foreign exchange for this course now and in the future. In the fixed-rate securities committed to keeping his choice of foreign exchange rate by using their own reserves. As a result the Central Bank assumes the functions of all foreign exchange market to meet demand for the currency and the supply of currency and setting the price of foreign currency. This facilitates trade and investment between countries with currencies linked and is very useful for small economies, where foreign trade is a large part of GDP. It also serves to control inflation.

Floating exchange rate

Floating exchange rates is a fluctuating exchange rate, which is set taking into account the dynamics of exchange rates or a set of individual currencies.

Step 1

1965 and 1980

The exchange rate of the kwacha is predominated in period 1 that is from 1965 to 1980 is fixed exchange rate as it can be seen that from 1965 to 1972, the exchange rate fixed which may be due to the efforts of the central bank. However, for years the exchange rate fluctuated but again from 1977 to 1980, the exchange rate is again showed as the fixed exchange rate.

1990 and 1998

The exchange rate of the kwacha is predominated in period 2 that is from 1990 to 1998 is floating exchange rate as it can be seen that from 1990 to 1998, floating exchange rates is a fluctuating exchange rate, it is an exchange rate whose value determined by market forces.

Appreciation or Depreciation

The above graph from 1980 to 1995 shows that the exchange rate of the kwacha is appreciating, as during the period of 1980 to 1995, it can be observed that the exchange rate of kwacha is continuously increasing; it may happen that the Central Bank intervenes by preventing the exchange rate appreciating further. In this case, although there is a regime of floating exchange rate, in practice the value of the exchange rate remains stable over time. Furthermore, many economists argue that a floating regime is favorable for growth and long-term stability of the economy, because the exchange rate appreciates to smooth shocks and economic cycles.

Fixed Exchange Rate for the Kwacha

It is important for the government of Zambia to maintain and sustain the fixed exchange rate for the kwacha because the value of the currency fixed against another currency, a basket of currencies, or other measure ...