BANKING AFFAIRS

Detailed explanation-1: -A fixed exchange rate is a regime applied by a government or central bank that ties the country’s official currency exchange rate to another country’s currency or the price of gold. The purpose of a fixed exchange rate system is to keep a currency’s value within a narrow band.

Detailed explanation-2: -Under flexible exchange rate regime, the rate of exchange is determined by the forces of demand and supply. In other words, the equilibrium rate of exchange occurs where demand and supply are equal to each other.

Detailed explanation-3: -A dual exchange rate is a setup created by a government where their currency has a fixed official exchange rate and a separate floating rate applied to specified goods, sectors, or trading conditions. The floating rate is often market-determined in parallel to the official exchange rate.

Detailed explanation-4: -Since 1973, the floating exchange rate regime was adopted by countries with following options: managed float system, free float system, crawling peg system, currency board arrangement and target zone arrangement.