Fixed and Floating Exchange Rate Regime
Fixed and Floating Exchange Rate Regime Floating Rate vs. Fixed Rate: An Overview More than $5 trillion is traded in the currency markets on a daily basis, as of 2018. An exchange rate is the rate at which one currency can be exchanged for another. In other words, it is the value of another country's currency compared to that of your own. If you are traveling to another country, you need to "buy" the local currency. Just like the price of any asset, the exchange rate is the price at which you can buy that currency. If you are traveling to Egypt, for example, and the exchange rate for U.S. dollars is 1:5.5 Egyptian pounds, this means that for every U.S. dollar, you can buy five and a half Egyptian pounds. Theoretically, identical assets should sell at the same price in different countries, because the exchange rate must maintain the inherent value of one currency against the other. Floating Rates Unlike the fixed rate, a floating exchange rate is de...