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Exchange Rates: Fixed, Flexible, and Managed Float definitions

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Terms in this set (13)

  • Exchange Rate
    The value at which one nation's currency can be traded for another's, often fluctuating due to market forces or government policy.
  • Floating Exchange Rate
    A system where currency values are set by supply and demand in the foreign exchange market, causing frequent rate changes.
  • Fixed Exchange Rate
    A system where governments agree to keep their currency values constant relative to another currency or commodity.
  • Supply and Demand
    The market forces that determine currency values in a flexible exchange system, influencing rate fluctuations.
  • Equilibrium Exchange Rate
    The rate at which the quantity of currency supplied equals the quantity demanded in the foreign exchange market.
  • Gold Standard
    A historical system where currency values were tied to a specific amount of gold, ensuring fixed exchange rates.
  • Pegging
    A practice where a country sets its currency value to match or closely follow another currency, maintaining stability.
  • Managed Float
    A system where currency values mostly float but governments occasionally intervene to prevent extreme fluctuations.
  • Currency Intervention
    Government actions in the foreign exchange market, such as buying or selling currency, to influence its value.
  • Yuan
    The official currency of China, which has historically been pegged to the US dollar under a fixed exchange system.
  • US Dollar
    A major global currency often used as a reference point for pegging and international exchange rate systems.
  • Great British Pound
    The official currency of the United Kingdom, commonly involved in exchange rate comparisons and international trade.
  • Foreign Exchange Market
    A global marketplace where currencies are traded, and exchange rates are determined by various systems and interventions.