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Why Fixed Exchange Rate is Important for an Economy

  • April 2014
  • Posted By Ninoslav

In any economy of any country, the currency system always plays a major role. Governments always try to maintain a standard value of their currency against the other currency. Now, Fixed Exchange Rate is a system by which one government can maintain their currency value. Generally, some factors are involved intimately when any Government try to decide a currency value.

Factors that matter a lot
First of all, gold plays a major role in Fixed Exchange Rate. A country can fixed a particular weight of gold to standardize their currency value. Government also can fix a specific amount of other currency or a basket of another currency. Usually, central bank of any country always committed to sell or buy their currencies at a preset price. Central bank should have to buy or sell the currency on a fixed price each and every time.

Types of exchange rate
In every country, you can find two different kinds of exchange rate of any currency. One is fixed type exchange rate and another one is floating type exchange rate. In floating rate, government body or central bank never interfere in this kind of exchange rate. It is completely determined by a market. But, in some cases, it can be controlled by the central bank.

The other one is completely determine by Government. Central bank state a level where this exchange rate stays. Government can take any decision to control the fluctuation of currency.

How it controls economy
This Fixed Exchange Rate is an important factor which can easily control the economy of any country. It can help an economy to organize currency fluctuation of an economy. Foreign currency exchange also depends on this. Now, if you are interested in foreign currency and finance market, then you should get a clear idea about this factor. It can help you to understand the economy of your country.


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