Analyze Alternative Exchange Rate Regimes Essay Example | Topics and Well Written Essays - 500 words

Analyze Alternative Exchange Rate Regimes - Essay ExampleFlexible modify rate constantly moves back and forth. Most of the country of the world keeps US dollars as a al starting time for funds against their own money. When we mean flexible supercede rate of a countrys currency, we consult its value with reference to US dollar. Change of international value of the dollar lead affect the change over rate of countrys currency against the dollar. There is no perfect model (Wray, 2011) to predict the work of international value of US dollar. There is no perfect model that rouse predict exchange rate of a countrys currency against US Dollar. Flexible exchange rate has advantages self-sustaining monitory insurance policy, promotes economic phylogenesis, promotes international job, and increases international liquidity.Government operating with flexible exchange rate does not undertake responsibility of currency conversion. Government does not need to fear that it will run brea k through of hostile currency reserves. In case of using flexible exchange rate monitory policy of the country is not limited or affected by the economic conditions of early(a) country. Thus, it promotes economic development leading to full employment. Since, government does not control the exchange rate, restriction on international trade is removed which contributes to free moving of capital among countries. Flexible exchange rate removes the necessity of keeping foreign exchange reserves thus, increases international liquidity of the currency.In a fixed exchange rate system, the currency has a target rate based on other currency or basket of other currencies (Wray, 2011). This is how government is controlling value between two currencies. If the government let the currency float it can trigger domestic inflation. Government will be printing paper money, and its monitory policy will be affected, as well as the job market. When export and import elasticity is extremely low (Wray, 2011),