Dialogue about exchange rates(1).docx

Sells its own currency on the foreign exchange market

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sells its own currency on the foreign exchange market in return for the currency to which it is pegged. Н- Are you talking about fixed rate? Ю- Yes, you are right! So, if, for example, it is determined that the value of a single unit of local currency is equal to US$, the central bank will have to ensure that it can supply the market with those dollars. In order to maintain the rate, the central bank must keep a high level of foreign reserves . М- And the central bank can also adjust the official exchange rate when necessary. Ю- Next one is floating rate. Unlike the fixed rate, a floating exchange rate is determined by the private market through supply and demand. A floating rate is often termed "self-correcting" . Н- And this means that a floating exchange rate is constantly changing. Ю- In reality, no currency is wholly fixed or floating. In a fixed regime, market pressures can also influence changes in the exchange rate. М- You mean, in a floating regime, the central bank may also intervene when it is necessary to ensure stability and to avoid inflation. However, it is less often that the central bank of a floating regime will interfere. Ю- That’s right. Now, currency market isn’t stable in our country. That’s why our government try to correct this situation by floating rate. Н- This was our last question for you today. It was great to see you here. Till we meet again! Ю- Goodbye.
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  • Winter '13
  • 121
  • Foreign exchange market

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