The floating exchange rate system is an exchange rate system in which the government let the domestic currency to fluctuate in response to demand and supply in the foreign exchange market. This system is the opposite of a fixed exchange rate system.
Economic Context
Flexible Peg System: Balancing the Exchange Rate Stability & AdjustmentÂ
A flexible peg offers a middle ground in the world of exchange rates. Imagine a tether for your boat that allows some movement but keeps it anchored in place. That's the essence of a flexible peg system for a country's currency. In this system, the
Fixed Parity System: Pros, Cons, vs. Currency Boards
A fixed parity system introduces a world of stability in the midst of fluctuating currency values. Imagine tethering your boat's anchor to a sturdy post: that's essentially what a fixed parity system does for a country's currency. In this system, a
Crawling Peg: A Flexible Anchor for Exchange Rates (Pros, Cons)
A crawling peg offers a dynamic approach to managing a country's exchange rate. Unlike a fixed exchange rate, where the value remains constant, a crawling peg allows for gradual adjustments within a predefined band. This system empowers central banks
Money Multiplier: Understanding Money Creation – Formula, Impacts
The money multiplier explains how base money, also known as the monetary base, can grow exponentially through the money creation process within a fractional reserve banking system. Essentially, every new unit of base money injected into the economy
Money Neutrality Explained: Does Printing Money Boost the Economy?
Money neutrality is a concept in economics that tackles a fundamental question: does simply printing more money make an economy stronger? This theory argues that, in the long run, changes in the money supply only affect prices, not the actual
Open Market Operations: Central Bank Tool for Liquidity and Growth
An open market operation is the central bank's activity of buying and selling securities. It is an integral part of monetary policy tools, apart from policy interest rates and the change in reserve requirements ratio. The aim is to influence
Active Crawling Peg: Pre-Planned Adjustments for Exchange Rate Stability (Pros, Cons)
Active crawling peg is a type of crawling peg system where the central bank preannounces a target band of the exchange rate. In a crawling peg, the central bank sets a target band for exchange rate fluctuations. Exchange rate movements must be within
Fixed Exchange Rates: Stability vs. Flexibility (Factors, Impacts, Pros, Cons)
A fixed exchange rate is an exchange rate system in which domestic currency is pegged to other currencies or gold prices. For instance, imagine a country with a fixed exchange rate system where the Euro is pegged to the US dollar at a fixed rate of
Currency Board System: Fixed Rates, Fixed Rules (Pros, Cons)
A currency board system is one way to keep inflation low and currencies stable. It's a monetary system where the government guarantees to exchange a fixed amount of domestic currency for a specific foreign currency, like the US dollar. This system
Central Bank Lending Rate: Control Lever for Economy (Growth, Inflation)
The central bank lending rate is the interest rate that commercial banks pay when they borrow money directly from the central bank. It acts like a steering wheel for the economy, allowing the central bank to influence both short-term and long-term
Policy Rate: Central Bank’s Tool for Growth & Inflation (Impacts)
The policy rate, also known as the benchmark rate, is a powerful tool wielded by central banks to steer the economy. It's essentially the interest rate that the central bank charges commercial banks for borrowing money. By adjusting this rate,