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Government Impact on Exchange Rates

This document discusses different types of exchange rate systems that governments use to influence exchange rates: fixed exchange rates where rates are kept constant; freely floating rates determined by market forces; managed floats that lie between fixed and floating; and pegged rates where a currency is pegged to another. It also discusses the eurozone and impact of the euro on European monetary policy and cross-border business. Finally, it covers how weak and strong currencies can respectively boost exports or encourage imports for an economy.

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Elsa Rahma
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14 views3 pages

Government Impact on Exchange Rates

This document discusses different types of exchange rate systems that governments use to influence exchange rates: fixed exchange rates where rates are kept constant; freely floating rates determined by market forces; managed floats that lie between fixed and floating; and pegged rates where a currency is pegged to another. It also discusses the eurozone and impact of the euro on European monetary policy and cross-border business. Finally, it covers how weak and strong currencies can respectively boost exports or encourage imports for an economy.

Uploaded by

Elsa Rahma
Copyright
© All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd

Resume Chapter 6

Government Influence on Exchange Rates

Disusun Oleh :

Elsa Rahmasari

041511233198

Manajemen

Fakultas Ekonomi dan Bisnis

Universitar Airlangga

2018
Government Influence on Exchange Rates

Exchange Rates Systems


 Fixed Exchange Rate System
In a fi xed exchange rate system, exchange rates are either held constant or allowed to
fluctuate only within very narrow boundaries. A fixed exchange rate would be beneficial to a
country for the following reasons.

 Freely Floating Exchange Rate System

In a freely floating exchange rate system, exchange rate values are determined by market forces
without intervention by governments.

 Managed Float Exchange Rate System

The exchange rate system that exists today for some currencies lies somewhere between fixed
and freely floating. It resembles the freely floating system in that exchange rates are allowed
to fl uctuate on a daily basis and there are no offi cial boundaries.

 Pegged Exchange Rate System

Some countries use a pegged exchange rate arrangement, in which their home currency’s value
is pegged to a foreign currency or to some unit of account.

A Single European Currency

 Membership

The agreement to adopt the euro was a major historical event. Countries that had previously
been at war with each other at various times in the past were now willing to work together
toward a common cause

 Impact on European Monetary Policy

The euro allows for a single money supply throughout much of Europe, rather than a separate
money supply for each participating currency.

 Impact on Business within Europe


The euro enables residents of participating countries to engage in cross-border trade flows and
capital flows throughout the so-called euro zone (of participating countries) without converting
to a different currency.

Intervention as a Policy Tool

 Influence of a Weak Home Currency on the Economy

A weak home currency can stimulate foreign demand for products. A weak dollar, for example,
can substantially boost U.S. exports and U.S. jobs. In addition, it may also reduce U.S. imports.

 Influence of a Strong Home Currency on the Economy

A strong home currency can encourage consumers and corporations of that country to buy
goods from other countries.

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