Exchange Rates

Floating Exchange Rate

When market forces determine the value of a currency without any direct intervention by the central bank

Real Exchange Rate

Nominal exchange rate of country A x (price level in country A ÷ price level in country B)

Effective Exchange Rate

Measures a currency against a basket of other currencies

Managed Exchange Rate

Any regime that has some form of direct intervention in currency markets by the central bank

Hard peg

Exchange rate is fixed at a given value (fixed exchange rate)

Soft peg

Exchange rate is fixed between a range of values

Adjustable peg system

Exchange rate fixed at either hard peg or soft peg in the short term, but can be changed in the long term if market forces dictate it

Crawling peg system

Exchange rate is fixed with a predetermined intention to move this fix in a given direction over time

Dirty float system

Exchange is predominantly determined by market forces, but the central bank may intervene periodically to prevent large volatility or big changes in the rate