Fixed and Floating Exchange Rate

Fixed and Floating Exchange Rate

Fixed and Floating Exchange Rate

Introduction

The value of the currency had an enormous impact on the economy of a nation. When estimating the value of local currency which shows that more units of currency needed to buy one unit of domestic currency, such countries become able to buy cheaper foreign products. On the other hand, are products of this country more expensive in foreign markets, and because of the dollar, local exporters as external demand down injured? We can say that can affect not only the value of a currency, but also the predictability of international trade. If a business is his business in a country whose currency has a value of uncertain future, it may income uncertainty on the future of society, operating costs, and hence profits. As we know, companies risk aversion prefers the risk and uncertainty of future revenue and reduce costs. Every day, millions of businesses and individuals throughout the business world with companies often these operations two or more currencies. Individuals and businesses give monetary billion transactions per day. The standard for the number of units of currency for instance dollars were for one unit of another currency for example the Mexican Pesos is generally regarded as the exchange rate between two currencies are known waived. In other words, the exchange rate is the price of one currency into another currency.

Discussion

Fixed Exchange Rate

The central bank chooses a nominal exchange rate with respect to the currency of a country or economy generally is a large, stable and low inflation. These features were fulfilled by the U.S. economy, the German economy, and European economic region, which is why many countries throughout history has fixed its nominal exchange rate against the dollar, the German mark, and more recently the euro. These features were fulfilled by the U.S. economy, the germ economy, European economic and region s, which is why many countries throughout its history has fixed nominal exchange rate against the dollar, the germ mark, and more recently the euro. (Bordo, 1993) In addition to this, when the central bank buys foreign exchange, currency injected into the economy, the monetary base namely increase, and vice versa, moreover, the central bank buys and sells the base currency value fixed by the same, so, the exchange rate is fixed. When the central bank buys foreign exchange, currency injected into the economy, namely the monetary base increases, and vice versa.

The changes in the monetary base have an impact on the volume of the means of payment, the cost and availability of credit, interest rates and consequently in the volume of investment, consumption and economic activity. The changes in the monetary base have an impact on the volume of the means of payment, the cost and availability of credit, interest rates and consequently in the volume of investment, consumption and economic activity. That is why the choice of an exchange system in a very important element for the country's economic ...