Exchange Rate Mechanisms

Exchange rate mechanisms are systems that determine how the value of one country’s currency compares to another’s. They include fixed rates, where governments or central banks set and maintain a specific exchange rate, and floating rates, which fluctuate based on supply and demand in the global currency markets. Some countries use managed floats, intervening occasionally to stabilize their currency. These mechanisms influence international trade, investments, and economic stability, aiming to balance currency value with economic goals. Overall, they help facilitate smooth transactions and predictability in global financial interactions.