An exchange rate is the rate at which one currency may be traded (bought or sold) for another currency. Normally it is more expensive to buy another currency than it is to sell that currency. This differential is referred to as the "spread" and the difference between the buy rate and the sell rate is referred to as the "mid rate".
Unlike gold fixing exchange rate fixing or forex fixing does not have a universal method to globally stabilize the exchange rates. Without any central point of reference, it is up to every country to control their own exchange rates with other currencies in what is now a highly volatile and potentially lucrative but dangerously volatile market.
There are various ways that any country can peg its currency to all the other currencies that it may have forex dealings with. Broadly these fall into three regimes:
Exchange rate fixing or the pegging of an individual country's exchange rate is generally done in an attempt to control that country's inflation. But this may have the undesired effect of slowing growth and even curbing the country's productivity. Assistance from the International Monetary Fund (IMF) is often called upon.
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Unlike gold fixing exchange rate fixing or forex fixing does not have a universal method to globally stabilize the exchange rates. Without any central point of reference, it is up to every country to control their own exchange rates with other currencies in what is now a highly volatile and potentially lucrative but dangerously volatile market.
There are various ways that any country can peg its currency to all the other currencies that it may have forex dealings with. Broadly these fall into three regimes:
- Hard Pegs — No separate legal tender; currency bound by arrangement
- Intermediate — From soft pegging through to tightly managed "floats"
- Floating — Freely managed or freely floating against other currencies, driven by supply and demand economics
Exchange rate fixing or the pegging of an individual country's exchange rate is generally done in an attempt to control that country's inflation. But this may have the undesired effect of slowing growth and even curbing the country's productivity. Assistance from the International Monetary Fund (IMF) is often called upon.
