abhishreshthaa
Abhijeet S
Crawling Peg:
A crawling peg rate is a hybrid of fixed and flexible exchange rate systems. Under this system, while the value of a currency is fixed in terms of a reference currency, this peg keeps on changing itself in accordance with the underlying economic fundamentals, thus letting the market forces play a role in the determination of the change in exchange rate.
There are several bases which could be used to determine the direction of change in the exchange rate for example – the actual exchange rate ruling the market, t there is gradual modifications with permissable variations around the parity restricted to a narrow band.
The change in parity per unit period is subject to a ceiling with an additional short term constraint, e.g. parity change in a month cannot be more than 1/12th of the yearly ceiling. Parity changes are carried out , based on a set of indicators.
They may be discretionary, automatic or presumptive. The indicators are : current account deficits, changes in reserves, relative inflation rates and moving average of past spot rates. Countries such as Portugal and Brazil have in the part adopted variants of Crawling Peg.
Adjustable Peg:
Adjustable Peg system was established which fixed the exchange rates, with the provision of changing them if the necessity rose. Under the new system, all the members of the newly set up IMF were to fix the par value of their currency either in terms of gold, or in terms of US dollar. The par value of the US dollar was fixed at $ 35 per ounce.
All these values were fixed with the approval of the IMF, and were reflected in the change economic and financial scenario in the countries engaged in international trade.
The member countries agreed to maintain the exchange rates for their currency within a band of one percent on either sides of the fixed par value. The extreme points were to be referred to as upper and lower support point, due to which requirement that the countries do not allow the exchange rate to go beyond these points.
The monetary authorities were to stand ready to buy or sell the US dollar and thereby support the exchange rates. For this purpose, a country which would freely buy and sell gold at the aforementioned par value for the settlement of international transactions was deemed to be maintaining its exchange rate within the one percent band.
A crawling peg rate is a hybrid of fixed and flexible exchange rate systems. Under this system, while the value of a currency is fixed in terms of a reference currency, this peg keeps on changing itself in accordance with the underlying economic fundamentals, thus letting the market forces play a role in the determination of the change in exchange rate.
There are several bases which could be used to determine the direction of change in the exchange rate for example – the actual exchange rate ruling the market, t there is gradual modifications with permissable variations around the parity restricted to a narrow band.
The change in parity per unit period is subject to a ceiling with an additional short term constraint, e.g. parity change in a month cannot be more than 1/12th of the yearly ceiling. Parity changes are carried out , based on a set of indicators.
They may be discretionary, automatic or presumptive. The indicators are : current account deficits, changes in reserves, relative inflation rates and moving average of past spot rates. Countries such as Portugal and Brazil have in the part adopted variants of Crawling Peg.
Adjustable Peg:
Adjustable Peg system was established which fixed the exchange rates, with the provision of changing them if the necessity rose. Under the new system, all the members of the newly set up IMF were to fix the par value of their currency either in terms of gold, or in terms of US dollar. The par value of the US dollar was fixed at $ 35 per ounce.
All these values were fixed with the approval of the IMF, and were reflected in the change economic and financial scenario in the countries engaged in international trade.
The member countries agreed to maintain the exchange rates for their currency within a band of one percent on either sides of the fixed par value. The extreme points were to be referred to as upper and lower support point, due to which requirement that the countries do not allow the exchange rate to go beyond these points.
The monetary authorities were to stand ready to buy or sell the US dollar and thereby support the exchange rates. For this purpose, a country which would freely buy and sell gold at the aforementioned par value for the settlement of international transactions was deemed to be maintaining its exchange rate within the one percent band.