Question

Describe the three types of exchange rate systems.

Answer 1

Ans.

3 Types of Exchange rate systems are -

1. Float - In floating exchange rate system the value of your own currency with relation to foreign currency is allowed to fluctuate freely and which likely to suffer from market forces. Example - Dollar.
2. Fixed - In fixed exchange rate system the value of your own currency is when tied to single other foreign currency or by gold , which is another type of measure of value. - like the central bank holds that foreign currency as reserve and gold. Example of fixed exchage rate system is Gold standard.
3. Pegged Float - In Pegged float exchange rate system the value of currency is fixed to a certain value,and were fluctuation exists but the fluctuation of exchange rate happens within that value.Example - UAE pegged its currency with the USA currency (Dollars).$1 = 3 dirhams

Note - As per economist , the best exchange rate system is floating exchange rate .

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