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The exchange rate system and the difference between fixed exchange rate and managed float exchange rate.
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Explanation of Solution
Exchange rate system:
An exchange rate system explains an agreement between countries on how to determine the exchange rate.
Difference between fixed exchange rate and managed floating exchange rate:
Under fixed exchange rate system, countries agree to keep the exchange rate fixed among their currencies for a long time. Under managed floating exchange rate, the demand and supply of currencies determine the equilibrium value of the currencies, with occasional government intervention.
Concept introduction:
Exchange rate system: An exchange rate system explains an agreement between countries on how to determine the exchange rate.
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Chapter 19 Solutions
Macroeconomics (7th Edition)
- what is volatility in exchange rate ?arrow_forwardWhy is exchange rate important in International Finance? Can we get rid of Exchange rate in International Business ?arrow_forwardDo you think Balance of Payment and its different components have any role in determining the exchange rate of a country? Explain your point of view.arrow_forward
- What is an exchange rate? Why would a government want to maintain a fixed exchange rate? If the U.S. wanted to maintain a fixed exchange rate between the Euro and the Dollar, how would it do so?arrow_forwardWhy did countries like the Philippines abandon the adjustable peg system and replaced it with themanaged floating exchange rate system? Why is this system sometimes referred to as “dirty float”?arrow_forwardWhat conditions have contributed to Interest Rate Parity not holding in the market during the past few years?arrow_forward
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