ECONOMICS (CBSE/UGC NET)

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: -fixed exchange rate. The rate that is determined by the government is called the fixed exchange rate.

Detailed explanation-3: -A fixed or pegged rate is determined by the government through its central bank. The rate is set against another major world currency (such as the U.S. dollar, euro, or yen). To maintain its exchange rate, the government will buy and sell its own currency against the currency to which it is pegged.

Detailed explanation-4: -A fixed exchange rate denotes a nominal exchange rate that is set firmly by the monetary authority with respect to a foreign currency or a basket of foreign currencies. By contrast, a floating exchange rate is determined in foreign exchange markets depending on demand and supply, and it generally fluctuates constantly.

Detailed explanation-5: -A floating exchange rate is determined by the private market through supply and demand. A fixed, or pegged, rate is a rate the government (central bank) sets and maintains as the official exchange rate.