Fixed Exchange Rate
Fixed Exchange Rate Meaning:
In foreign exchange terminology, a fixed exchange rate or pegged policy implies that a country does not permit the value of its currency to fluctuate significantly against another currency, or perhaps gold. Usually, the country’s central bank will intervene to maintain the fixed rate, and will act to smooth out market supply and demand factors so that the rate trades in a very narrow range.
In foreign exchange terminology, a fixed exchange rate or pegged policy implies that a country does not permit the value of its currency to fluctuate significantly against another currency, or perhaps gold. Usually, the country’s central bank will intervene to maintain the fixed rate, and will act to smooth out market supply and demand factors so that the rate trades in a very narrow range.
A country’s policy of maintaining a fixed exchange rate for its currency against a major trading partner’s currency allows companies engaged in international trade to have a greater degree of certainty about their import and export transactions. Following such a policy can also assist the country in controlling inflation.