Finance, Forex and Investments

how to fix exchange rate of currency?

recently indian currency rate has incread against us doller how it happening ,who decides it

Public Comments

1. you cant fix it to stay put. it depends on the global economy
2. you can't fix the exchange. The exchange rate are determined by stock markets and exchange of stock.
3. exchange rate of one currency against anohter currency is determined based on the supply and demand of the particular currency in the money market.
4. It is impossible to fix exchange rates. It is determined by global demand and supply.
5. ......................................................... you just cant go and put a set number for it........ its the global economy that does it.
6. therere r 2 typs of exchng rate 1. fixed exchng rate which is dcided by central bnk or govt & other one is 2. flexible exchange rate which is decided by equality between demand for money & supply of money
7. Exchange rate regime : The exchange rate regime is the way a country manages its currency in respect to foreign currencies and the foreign exchange market. It is closely related to monetary policy and the two are generally dependent on many of the same factors. The basic types are a floating exchange rate, where the market dictates the movements of the exchange rate, a pegged float, where the central bank keeps the rate from deviating too far from a target band or value, and the pegged exchange rate, which ties the currency to another currency, mostly more widespread currencies such as the U.S. dollar or the euro. Exchange rate regime : Float: Floating rates are the most common exchange rate regime today. For example, the Dollar, Euro, Yen, and British Pound all float. However, since central banks frequently intervene to avoid excessive appreciation/depreciation, these regimes are often called managed float. Pegged float Here, the currency is pegged to some band or value, either fixed or periodically adjusted. Pegged floats are: Crawling bands: the rate is allowed to fluctuate in a band around a central value, which is adjusted periodically. This is done at a preannounced rate or in a controlled way following economic indicators. Crawling pegs: Here, the rate itself is fixed, and adjusted as above. Pegged with horizontal bands: The currency is allowed to fluctuate in a fixed band (bigger than 1%) around a central rate. Fixed Fixed rates are those that have direct convertibility towards another currency. In case of a separate currency, also known as a currency board arrangement, the domestic currency is backed one to one by foreign reserves. A pegged curren Fixing exchange rates: Free or pegged : If a currency is free-floating, its exchange rate is allowed to vary against that of other currencies and is determined by the market forces of supply and demand. Exchange rates for such currencies are likely to change almost constantly as quoted on financial markets, mainly by banks, around the world. A movable or adjustable peg system is a system of fixed exchange rates, but with a provision for the devaluation of a currency. For example, between 1994 and 2005, the Chinese yuan renminbi (CNY, ¥) was pegged to the United States dollar at ¥8.2768 to $1. The Chinese were not the only country to do this; from the end of World War II until 1970, Western European countries all maintained fixed exchange rates with the US dollar based on the Bretton Woods system. Nominal and real exchange rates The nominal exchange rate is the rate at which an organization can trade the currency of one country for the currency of another. The real exchange rate (RER) is an important concept in economics, though it is quite difficult to grasp concretely. It is defined by the model: RER = e(P*/P), where 'e' is the exchange rate, as the number of home currency units per foreign currency unit; where P is the price level of the home country; and where P* is the foreign price level. Unfortunately, this compact and simple model for RER calculations is only a theoretical ideal. In practical usage, there are many foreign currencies and price level values to take into consideration. Correspondingly, the model calculations become increasingly more complex. Furthermore, the model is based on purchasing power parity (PPP), which implies a constant RER. The empirical determination of a constant RER value could never be realised, due to limitations on data collection. PPP would imply that the RER is the rate at which an organization can trade goods and services of one economy (e.g. country) for those of another. For example, if the price of a good increases 10% in the UK, and the Japanese currency simultaneously appreciates 10% against the UK currency, then the price of the good remains constant for someone in Japan. The people in the UK, however, would still have to deal with the 10% increase in domestic prices. It is also worth mentioning that government-enacted tariffs can affect the actual rate of exchange, helping to reduce price pressures. PPP was seen to have worked only in the long term (3-5 years) when prices eventually correct towards parity. More recent approaches in modelling the RER employ a set of macroeconomic variables, such as relative productivity and the real interest rate differential.