Pegged exchange rate MBA

[pooja]

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Hello sir I would like to know about the Pegged exchange rate term which comes in MBA program so please provide me suitable information about the same.

[Pathak]

In a fixed exchange rate system, the government of the country (or the Central Bank) intervenes to keep the exchange rate pegged at a particular rate.

Currency Pegging

Currency pegging leads to “pegged exchange rate” or “fixed exchange rate”, is the process of keeping the exchange rate of a country fixed against the value of a group of other currencies or a single other currency or to other measures like gold.

Exchange rate is the rate by which Central bank of a country exchanges its currency with any other foreign country.

A pegged exchange rate leads to a stabilized value of home currency.

This in turn makes trading and investing activities between two countries simpler and more predictable.

It allows traders to know the exact exchange rate that they can expect for their transactions, which leads to curbing of inflation and tempering of interest rates.

Hence this type of exchange rate system is especially useful for small economies where external trade forms a major chunk of their GDP.

Nowadays no major country follows this pegged rate system.

The exchange rate is pegged to a reference value, any fluctuations in reference value leads to changes in pegged currency as well.

Other related terms

Fixed Costs

Fixed Asset

Fixed Cost

Fixed Rate Loan

Fixed-annuities