Differentiate between fixed exchange rate and floating exchange-00628
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vu cs403 Database Management Systems.
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vu cs403 Mid Term Solved Past Paper No. 3.
Fixed exchange rate
A fixed exchange rate means the amount of currency received is set in advance.
A fixed exchange rate is based upon the government's view of the value of its currency as well as the monetary policy. It has advantages. Stability is one. Another is predictability. Businesses and individuals can plan their activities with the certainty of the value of money. A businessman shipping goods overseas knows the value in advance. A tourist travelling in other countries can budget knowing what his money will buy.
Floating exchange rates
A floating exchange rate means that the rate is moving and the currency received depends on the time of the exchange
The floating exchange rate, in its true form, allows the marketplace to set the rate. The forces of supply and demand determine the value of a currency.
For example, when the US dollar is considered strong it will take more euros, the currency of most European countries, to buy. When the US dollar is considered weak or in decline the amount of euros needed to buy it will fall.
