exchange rates

Question 1

two types of e/r? + definitions

Answer 1

fixed: the govt or central bank sets the e/r, often maintaining it at a target rate

floating: free to move with changing supply/demand of a currency

Question 2

what is a hybrid e/r?

Answer 2

a mixture of fixed and floating eg,

semi-fixed: e/r only allowed to fluctuate within a set band of e/r

pegged: value of currency is pegged to another currency

Question 3

how does a govt keep a currency at its target rate?

Answer 3

controlling interest rates and by buying/selling the currency to keep supply/demand of the currency stable

Question 4

ways of measuring e/r?

Answer 4

Nominal e/r: unadjusted/ direct comparison of the value of currencies

Real e/r: nominal rate but adjusted to take price levels into account

Question 5

e/r diagram

Answer 5

just supply/demand