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In: Economics

Explain the three different types of exchange rates. Find the three exchange rates for a currency of your choice amd explain the values you find.

choose the country UK and two others to compare exchange rate for this question:


Explain the three different types of exchange rates. Find the three exchange rates for a currency of your choice amd explain the values you find.

Solutions

Expert Solution

  • UK - Floating exchange rate system (A free and floating exchange rate regime is one in which a currency's value is allowed to vary according to the foreign exchange market)
  • China - Fixed exchange rate system (A fixed exchange rate regime is one in which the country's government maintains a constant value for a currency relative to any asset such as gold, or even other currencies such as Dollar ,etc)
  • India - Managed floating exchange rate system (In this type of an exchange rate regime, the exchange rate does float according to the foreign exchange market, but the central bank (RBI) keeps on buying and selling foreign currency to have some influence over the Indian Rupee too )

Let currency of choice be US Dollar ($)

  • 1 US Dollar = 0.77 GB Pound (It takes more dollars to buy GBP ; a floating exchange rate for UK means that it is doing currently better than USD, but there is always a risk for quick appreciation or depreciation)
  • 1 US Dollar = 6.79 Yuan (The Dollar is relatively better than Chinese Yuan, and it needs more Yuan to buy USD; The Yuan will always be stable, since their exchange rate is a fixed one.)
  • 1 US Dollar = 73.35 Indian Rupees (The Dollar is very strong againts the INR, it takes 73.35 INR to buy 1 USD ; India's managed floating exchange rate is an indicator that the exchange rate could be even worse, if not the Central Bank have managed to curb the downtides.)

Rahul Sunny answered 2 years ago
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