ECONOMICS (CBSE/UGC NET)

Detailed explanation-1: -What Is a Currency Peg? A currency peg is a policy in which a national government or central bank sets a fixed exchange rate for its currency with a foreign currency or a basket of currencies and stabilizes the exchange rate between countries. The currency exchange rate is the value of a currency compared to another.

Detailed explanation-2: -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-3: -A pegged exchange rate means the value of the currency is fixed relative to a reference currency, such as the U.S. dollar, and then the exchange rate between that currency and other currencies is determined by the reference currency exchange rate.

Detailed explanation-4: -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-5: -fixed exchange rate in Finance In a fixed exchange rate system, exchange rates are either held constant or allowed to fluctuate only within very narrow boundaries. A fixed exchange rate is an exchange rate set by the government for foreign exchange.