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FOLLOWING NEWS
RANGE TRADING
TREND TRADING
SCALPING
COMMODITY FUTURES
LEVERAGE
CURRENCY BAND
EXCHANGE RATES
FLOATING EXCHANGE RATE
FIXED EXCHANGE RATE
LINKED EXCHANGE RATE
CURRENCY SWAP
LIQUIDITY
MARKET SPECULATORS
FIXED EXCHANGE RATE
A fixed exchange rate, sometimes
called a pegged exchange rate, is a type of exchange rate regime wherein a
currency's value is matched to the value of another single currency or to a
basket of other currencies, or to another measure of value, such as gold. A
fixed exchange rate is usually used to stabilize the value of a currency, vis-a-vis
the currency it is pegged to. This facilitates trade and investments between the
two countries, and is especially useful for small economies where external trade
forms a large part of their GDP. It is also used as a means to control
inflation. However, as the reference value rises and falls, so does the currency
pegged to it. In addition, a fixed exchange rate prevents a government from
using domestic monetary policy in order to achieve macroeconomic stability.
LINKED EXCHANGE RATE
A linked exchange rate system is a type of
exchange rate regime to link the exchange rate of a currency to another. It is
the exchange rate system implemented in Hong Kong to stabilise the exchange rate
between the Hong Kong dollar and the United States dollar. Unlike a fixed
exchange rate system, the government or central bank does not actively interfere
in the foreign exchange market by controlling supply and demand of the currency
in order to influence the exchange rate. The exchange rate is stabilised by a
mechanism.
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