DMPQ- Highlight the major determinants of currency exchange rates.

Exchange rate determination is either as pegged/fixed exchange  rates or market-determined exchange rates. Pegged or fixed exchange rates are determined  as a direct intervention of the central bank in deciding on the exchange rates. There are  certain variants to such interventions like:

Currency Board

The central bank of a country pegs the home currency to a  stronger currency on a 1:1 basis or on a different ratio, as pegged exchange rate.

That is, home currency in circulation would depend on the available, inflow of  foreign currency. This is also referred to as the currency board’ system, advocated for  economies experiencing uncontrollable inflation of very high levels. It is believed to  impose strict monetary discipline and takes away monetary independence. Common  examples of currency board system are Argentina, Hong Kong, etc.

Crawling/Pegged Exchange Rates

This is similar to fixed exchange rate but  with the central bank of that country having the flexibility of letting the exchange  rate to float in a small band with a ceiling and a floor’. Examples are China,  Russia, etc.

Market-determined exchange rates are as follows:

Full Float

The exchange rate