Exchange Rates Essay Example | Topics and Well Written Essays - 250 words

Exchange Rates - screen ExampleHowever, the opposite happens in primed(p) rate regime.Furthermore, in fixed exchange rate the scathe of one currency is permanent comparative to all other currencies by state authority. However, in waxy or the floating exchange rate system, the value of a currency is permitted to vary in reply to the forces in the market. Alternatively, under the fixed exchange rates, expansion of money reduces interest rates thus guide to outflows of capital. The eventual loss in coffers lowers the money supply (Jones & Lumby, 2003).On the flip side, under the flexible regime the exchange rate is depreciated by the capital outflow resulting to a stimulated output (Mukherjee, 2007). Finally, under the fixed exchange rate, positive demand increases interest rates and provokes an inflow of capital that balances the loss of the coffers through dearth of trade. In contrast, under the floating rates the inflow of capital appraises the exchange