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The Role of Valuation of a Nations Currency to Another - Term Paper Example

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The author discusses the role of valuation of a nation's currency to another. To maintain a harmonious relationship between trading countries, there should be a mathematical basis for currency exchange. The basis for valuing one’s currency against another is the primary role of a central bank. …
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The Role of Valuation of a Nations Currency to Another
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Download file to see previous pages 1. Exchange arrangements with no separate legal tender - These are countries that belong to a currency union where there is a common legal tender that is used by all the members. An example of this is the Eurodollar of the European Union.
2. Currency board arrangements - a kind of exchange rate regime implemented by the government based on an explicit legislative commitment in exchanging its local currency for a specific foreign currency with corresponding restrictions that ensures the compliance of its legal obligation.
3. Conventional fixed peg arrangements - a country's exchange rate regime that pegs its currency within margins of less than 1 percent as compared with another currency; a cooperative arrangement; or a basket of currencies, "where the basket is formed from the currencies of major trading or financial partners and weights reflect the geographical distribution of trade, services, or capital flows."
4. Pegged exchange rates within horizontal bands - The currency's value "is maintained within certain margins of fluctuation of more than 1 percent around a fixed central rate or the margin between the maximum and minimum value of the exchange rate exceeds 2 percent."
5. Exchange rates within crawling bands - The currency is maintained within certain fluctuation margins of at least 1 percent around a central rate-or the margin between the maximum and minimum value of the exchange rate exceeds 2 percent and the central rate or margins are adjusted periodically at a fixed rate or in response to changes in selective quantitative indicators.  
6. Managed floating with no predetermined path for the exchange rate - the influence of the monetary authority to the exchange rate is done herein without having a specific exchange rate path or target.  ...Download file to see next pages Read More
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