Discuss the Various Factors That Determine the Exchange Rate Regime.

3078 Words Oct 21st, 2012 13 Pages
FACULTY OF MANAGEMENT AND ADMINISTRATION

PUBLIC SECTOR MANAGEMENT TRAINING PROGRAMME

(PSMTP)

MPSM 5TH COHORT

PSM 542: INTERNATIONAL TRADE AND FINANCE

GROUP ASSIGNMENT 1

Candidate's Reg. Numbers

R118475MP – LUSITO NEEMA FERDINAND

R118472MP – LIMBE RUTH COSMAS

R118474MP – MATATA JIMMY AVUTIA

LECTURER. MR CHARLES MAKANYEZA

Due date; 15th October, 2012

Question Two

Discuss the various factors that determine the exchange rate regime.

Introduction

This paper is an attempt to discuss various factors which determine the exchange regime in relation to the international trade. The paper will provide a brief overview
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This is the rate between two currencies as well as the rate at which one currency will be exchanged for another. Hence, exchange rates are determined in the foreign exchange market which is open to a wide range of different types of buyers and sellers where currency trading is continuous.

Exchange rate regime
An exchange rate regime is the way an authority manages its currency in relation to other currencies and foreign exchange market. It is closely related to monetary policy and the two are generally dependent on the same factors.

Exchange rate refers to the value of one currency in units of another currency. In a circumstance whereby there is a decline in a currency’s value is referred to as depreciation and an increase in currency’s value is called appreciation (Hill,1994).

Classifications of Exchange rate regime.

There are various options of exchange rate regimes available to countries based on their degree of flexibility, exchange rate regimes are arranged into three categories: Currency unions, dollarized regimes, currency boards and conventional fixed pegs are defined as “fixed-rate regimes”; Horizontal bands, crawling pegs and crawling bands are grouped into “intermediate regimes”; Managed and independent floats are defined as flexible regimes (Sozovska, 2004).

Monetary Union is a zone where a single monetary policy prevails and inside which a single currency or

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