Currency Trading Drawbacks
Not wanting to commit to fixed exchange rates, some govts occasionally use foreign currency intervention…?
to affect the value of their currencies. This is known as a managed flexible exchange rate system, or managed float, because it combines fixed and flexible exchange rates.
The diagram below shows the market for euros, where the exchange rate is defined as U.S. dollars per euro. Suppose that the central bank for the countries in the euro system (the European Central Bank or ECB) wants to increase the value of the euro relative to the U.S. dollar. Illustrate how the ECB could achieve this without changing interest rates.
EXTRA INFO:Most countries today use flexible exchange rates. However, through the history of the international monetary system, countries have adopted different approaches to fixing exchange rates. The hope was to facilitate trade and reduce the risk associated with buying foreign goods and assets. There is still considerable debate about the merits and drawbacks of fixed exchange rates.
Thanks for the info. Especially the extra info.
Forex Trading, Trade The FX market, Online Seminar, Part 6
