Exchange Rate Policy Chapter 19-3. An exchange rate regime is a rule governing policy toward the exchange rate.  A country has a fixed exchange rate.

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Presentation transcript:

Exchange Rate Policy Chapter 19-3

An exchange rate regime is a rule governing policy toward the exchange rate.  A country has a fixed exchange rate when the government keeps the exchange rate against some other currency at or near a particular target.  A country has a floating exchange rate when the government lets the exchange rate go wherever the market takes it.

Exchange Market Intervention

 Government purchases or sales of currency in the foreign exchange market are exchange market interventions.  Foreign exchange reserves are stocks of foreign currency that governments maintain to buy their own currency on the foreign exchange market.  Foreign exchange controls are licensing systems that limit the right of individuals to buy foreign currency.

For Inquiring Minds:The Road to the Euro