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Exchange Rate Essay

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Question 2
What is an exchange rate? Are terms like managed float, dirty float, fixed exchange rates, floating exchange rate, pegged exchange rate, crawling peg the same? Which type of exchange rate regime does India follow?   What is a currency crisis?   In recent times the rupee is becoming weaker against the dollar every day, what are the reasons for the same and what steps is the RBI taking to control the same. So, is the rupee depreciating or devaluing against the dollar? Support your conclusion by giving a dollar rupee graphical trend for the last three months.

ANS.
An exchange rate (also known as the foreign-exchange rate, forex rate or FX rate) between two currencies is the rate at which one currency will be exchanged for another. It is also regarded as the value of one country’s currency in terms of another currency. For example, an interbank exchange rate of 91 Japanese yen (JPY, ¥) to the United States dollar (US$) means that ¥91 will be exchanged for each US$1 or that US$1 will be exchanged for each ¥91. Exchange rates are determined in the foreign exchange market, which is open to a wide range of different types of buyers and sellers where currency trading is continuous

Managed float regime is the current international financial environment in which exchange rates fluctuate from day to day, but central banks attempt to influence their countries' exchange rates by buying and selling currencies. It is also known as a dirty float.
A system of floating exchange rates in which the government or the country's central bank occasionally intervenes to change the direction of the value of the country's currency. In most instances, the intervention aspect of a dirty float system is meant to act as a buffer against an external economic shock before its effects become truly disruptive to the domestic economy.  

Also known as a "managed float".
A fixed exchange rate, sometimes called a pegged exchange rate, is also referred to as the Tag of particular...

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