Exchange rates - Advantages

Fully fixed:
In a fixed exchange rate system, the government (or the central bank acting on its behalf) intervenes in the currency market in order to keep the exchange rate close to a fixed target. It is committed to a single fixed exchange rate and does not allow major fluctuations from this central rate.

Semi-fixed:
Currency can move within a permitted range, but the exchange rate is the dominant target of economic policy-making. Interest rates are set to meet the target exchange rate.

Free Floating:
The value of the currency is determined solely by supply and demand in the foreign exchange market. Consequently, trade flows and capital flows are the main factors affecting the exchange rate. The definition of floating exchange rate system is a monetary system in which exchange rates are allowed to move due to market forces without intervention by national governments.

Managed floating exchange rates:
Most governments engage in managed floating systems, if not part of a fixed exchange rate system.

Advantages

Fixed exchange rates:
Fixed rates provide greater certainly for exporters and importers and, under normal circumstances, there is less speculative activity though this depends on whether dealers in foreign exchange markets regard a given fixed exchanged rate as appropriate and credible.

Floating exchange rates:
Fluctuations in the exchange rate can provide an automatic adjustments for countries with a large balance of payments deficit. A second key advantage of floating exchange rates is that it allows the government/monetary authority flexibility in determining interest rates as they do not need to be used to influence the exchange rate.

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