Two Types Of Exchange Rate

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Exchange rate is the amount of one currency exchanging for another. For instance, exchange rate of the US dollar refers how much a US dollar is worth in a foreign currency. If you went to the United Kingdom on June 19, 2017, you would get 0.77 pounds for one US dollar. Every currency has its exchange rate. Currency Converter of Autoketing can help you change all currencies in the world. There are two kinds of exchange rate: flexible exchange rate and fixed exchange rate.

Flexible Exchange Rate

Most of the exchange rates are determined by the foreign exchange market. Foreign exchange market is forex market in short. They are the flexible exchange rate. Exchange rates change on a moment-by-moment basis. The rates depend on what forex traders think the currency is worth.

The value is based on some factors. Three primary factors include interest rates of the bank, country’s debt levels, and the power of its economy. The USD is a strong currency. The United States authority allows the forex market to determine USD value.

Fixed Exchange Rate

A country uses a fixed exchange rate when its currency does not vary value according to the forex market. The country makes its currency against the US dollar and the other currencies. To maintain the fixed value, the country will buy and sell a large amount of its currency and the other currencies.

China uses a fixed rate. Its currency, the yuan, is against the USD.  The US dollar has weakened against the yuan since it just can buy fewer yuan than before. The US government put pressure on the Chinese government to force the yuan to rise in value. Thanks to this, the US exports become more competitively priced in China. Therefore, China government changed the policy to make the yuan more flexible.

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