SUMMARY
Exchange rate regimes can be broadly grouped as either fixed (pegged) or floating. A floating rate regime has been found to be superior to the fixed rate regime but has also been found to have very high oscillations. A floating rate regime may be independent. It may also be managed, where the monetary authorities are found intervening in the foreign exchange market to stabilise rates.
Exchange rates are quoted either directly or indirectly. There are buying and selling quotes, spot and forward quotes and also cross quotes. In a floating rate regime, exchange rates are determined by the market forces of demand and supply. The interest rate differential and the inflation rate differential influence the exchange rate. The determination ...
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