Resources for Courses
Floating
exchange
rate
Fixed
exchange
rate
Managed
floating
exchange rate
Semi-fixed
exchange
rate
Central Bank may
have to intervene to
maintain value within
the band
The approach used
in the UK from
1973-1990
Value determined
mainly by market
forces of demand
and supply
Exchange rate stability
The most common
often achieved at
exchange rate system
expense of domestic
in the world
stability
Gov’t commitment to
a fixed price for the
currency
Value determined
Value given as a
purely by market
target within permitted forces of demand and
bands of fluctuation
supply
Revaluation/change
in target and bands
rare
No fluctuations from
the agreed rate
The Bretton Woods
system with currencies
tied to the US $ is a
good example
1944-1972
No target set by
government
The approach used
in the EU in the run-up
to Euro adoption in
2002
Central Bank may
intervene to prevent
large fluctuations
Used in the UK 19901992, with band of
2.95DM ± 6%
No intervention in the
Forex market by the
Central Bank
The exchange rate
becomes an economic
policy focus
No target set by
government
Value determined
purely by market
forces of demand and
supply
Floating
exchange
rate
Exchange rate stability
often achieved at
expense of domestic
stability
No fluctuations from
the agreed rate
Gov’t commitment to
a fixed price for the
currency
Fixed
exchange
rate
The most common
exchange rate system
in the world
Central Bank may
intervene to prevent
large fluctuations
Value determined
mainly by market
forces of demand
and supply
Managed
floating
exchange rate
The exchange rate
becomes an economic
policy focus
Revaluation/change
in target and bands
rare
Central Bank may
have to intervene to
maintain value within
the band
Value given as a
target within permitted
bands of fluctuation
Semi-fixed
exchange
rate
No intervention in the
Forex market by the
Central Bank
The approach used
in the UK from
1973-1990
Used in the UK 19901992, with band of
2.95DM ± 6%
The Bretton Woods
system with currencies
tied to the US $ is a
good example
1944-1972
The approach used
in the EU in the run-up
to Euro adoption in
2002