Particularities of exchange rate classes

2개월 전

The exchange rate, which represents the price of a country's currency in terms of the currencies of other countries, influences a country's international trade. Countries, as part of their monetary policies, adopt various systems to regulate their exchange markets.

Source ( Corporatefinanceinstitute )

Especially in small open economies, exchange rate management is the most important macroeconomic policy. In other words, the exchange rate is nothing more than the ratio relationship that exists between a currency and how many units of one currency are needed to obtain one unit of the other.

The fixed exchange rate, this system aims to keep the ratio of the two currencies constant over time, i.e., the amount of money needed to buy one dollar (or other foreign currency) is always the same.

Therefore, when there is a high demand in the market for dollars or any other currency (foreign currency), the Bank places in the market the amount of dollars necessary to maintain the exchange rate at the value determined.

Source ( Corporatefinanceinstitute )

Likewise, when there is excess supply (when there are more dollars in the market than are being demanded or requested), the Bank buys dollars to prevent the exchange rate from decreasing.

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In a country like Nigeria, The exchange rate of dollars continues to rise as the demand for dollars Increases.

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This that Nigeria explains, happens in all countries whose economies are anchored to an exclusive dependence on the dollar. Thank you @lebey1 for visiting me.

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My pleasure

Hi @alaiza

In the case of Venezuela, this you mention regarding "The exchange rate, which represents the price of the currency of a country in terms of the currencies of other countries, influences the international trade of a country", is something that in the last five years has been affecting us negatively to the point of having reached inflation levels above 3000%.

Best regards, be well.

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Hello, I know the situation in Venezuela very well. The country's case escapes any technical economic and financial analysis. Thank you @lupafilotaxia for visiting me.