bus 123d - of demand and supply. In this case the currency...

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Why is foreign exchange risk higher in freely floating exchange rate systems than in fixed exchange rate systems? Solution: Exchange rate can be defined as the rate or denomination at which two different currencies can be exchanged with each other. Different countries all over the world has different currencies and it in order to facilitate trade between the countries it is very important to have an exchange rate wherein the currencies can be exchanged between the countries. Floating exchange rate is the form of exchange rate wherein the exchange rate is not fixed by the government but is determined independently by the market forces through the interaction
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Unformatted text preview: of demand and supply. In this case the currency value is allowed to fluctuate according to the response of foreign exchange market. The other form of exchange rate is the fixed exchange rate which is also sometimes known as pegged exchange rate is the rate which is fixed by central government or the central bank of the country and is maintained unless it is changed at the government discretion. As the exchange rate is not fixed under floating exchange rate system the risk of foreign exchange is higher....
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This note was uploaded on 02/21/2012 for the course ACT 492 taught by Professor Ngo during the Fall '11 term at Colorado.

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