ECO Assignment.docx

In this paper, a fixed exchange rate and a floating exchange rate, indicating their strengths and weaknesses. Comparative analysis and concluded: A choice of exchange rate regime should depend on the specific circumstances of each country: the degree of openness, trade and soon, it cannot absolutely say which isa little better. The definition of floating exchange rates Floating exchange rate is the national currency and the exchange rate between the currencies of other countries not be decided by the Government , It depends on the foreign exchange market supply and demand, and it is free floating ,w hen the exchange rate volatility, the government will intervene in the market, which is the exchange rate system prevalent in Western countries after the breakup of the Breton Woods system .A floating rate is often termed "self-correcting", as any differences in supply and demand will automatically be corrected in the market. The advantages of floating exchange rates : Automatic balance of payments adjustment - Floating exchange rates will adjust any imbalance of international payments Freeing internal policy - The floating rate allows governments freedom to pursue their own internal policy objectives such as growth and full employment without external constraints. With a floating exchange rate, balance of payments disequilibrium should be rectified bya change in the external price