The following procedure is observed in India for the determination of Exchange Rate:- In theory terms exchange rate determination is explained by two main models: 1. Flexible/floating exchange rate model 2. Fixed/pegged exchange model 1. Flexible Exchange Rate Model: When we treat exchange as a price of any foreign currency, then we can use the tools of demand and supply [...]
In this article we will discuss about fixed or pegged and flexible or fluctuating exchange rate system. Fixed or Pegged Exchange Rate System: In the case of fixed or pegged exchange system, all the international transactions take place at the rate of exchange fixed by the monetary authority. The exchange rate is either fixed by the government through legislation or [...]
The rigidly fixed exchange rate policy and freely flexible exchange rate policy are at the two extremes. Either of the two extreme policies suffered from certain defects or problems. In practice, the different countries have attempted to adopt such exchange rate policies that tend to combine a certain degree of inflexibility with a reasonable degree of flexibility. Such policies are [...]