FINS1612 Chapter Notes - Chapter 8: The Foreign Exchange, Managed Float Regime, Japanese Yen
Document Summary
Exchange rate regimes and foreign exchanges (fx"s) global nature. The foreign exchange (fx) markets trade currencies of the majority of nation states. The market is open 24 hours a day & trades trillion/day. Each country or monetary union is responsible for determining their exchange rate regime. An exchange rate is the value of 1 currency relative to that of another currency. Floating exchange (free float) regime - the exchange rate is determined by the forces of supply & demand. Adopted by the major currencies (usd, gbp, jpy, eur, and aud), a central bank can intervene to slow movements. Managed float exchange rate is held within a defined band relative to another currency (limited fluctuations allowed) Crawling peg exchange rate is allowed to appreciate in controlled steps over time. Pegged exchange rate value of the pegged currency is tied to the value of another currency or basket of currencies.