International Exchange Rates

Advertisements

International exchange rates show how much currency is exchangeable for another currency.1 Currency exchange rates can float, which implies that they continuously change depending on various factors, or they can be connected to other currencies (or fixed in this case) but shift in tandem with the currency they are attached to.

1. Floating vs. Fixed Exchange Rates

Currency exchange rates can float, which meant that currency transition can continue, depending on different factors, or that currencies can be bound to (or set in this case) other currencies, but can move by the currency to which they are attached.

Central banks determine a fixed or tied rate. Another world currency is set against this (such as the U.S. dollar, euro, or yen). The government can buy and sell its currency against the currency in question to preserve its exchange rate2. In some nations, China and Saudi Arabia are the countries that chose to stick their currencies with the US dollar. The currencies of most of the largest economies in the world were freely permitted in the wake of the Bretton Woods system’s collapse between 1968 and 1973.5 Most exchange rate is therefore not fixed but is conditioned by ongoing worldwide currency trading activity.

Advertisements