ECONOMICS (CBSE/UGC NET)

Detailed explanation-1: -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-2: -Exchange rates of a currency can be either fixed or floating. Fixed exchange rate is determined by the central bank of the country while the floating rate is determined by the dynamics of market demand and supply.

Detailed explanation-3: -There are four main types of exchange rate regimes: freely floating, fixed, pegged (also known as adjustable peg, crawling peg, basket peg, or target zone or bands ), and managed float.

Detailed explanation-4: -Fixed-rate regime: currency unions, dollarized regimes, currency boards and conventional currency pegs. Intermediate regimes: horizontal bands, crawling pegs and crawling bands. Flexible regimes: managed and independent floats.

Detailed explanation-5: -A floating exchange rate is also known as a flexible exchange rate, and changes according to supply and demand. This means if the demand for a currency is low or it’s widely available it’s value goes down, and conversely if it’s in demand or short supply, it’s value goes up – and with it the exchange rate.