A Fixed Exchange Rate System is a monetary policy framework where a country's currency value is tied or pegged to another major currency or a basket of currencies, ensuring stability in international trade and investment by minimizing exchange rate volatility. This system requires the central bank to actively buy or sell its currency to maintain the fixed rate, often leading to significant reserves of foreign currency.

Fixed Exchange Rate System

A Monetary Policy Framework is a set of guidelines and tools used by a central bank to manage the economy's money supply and interest rates, aiming to achieve macroeconomic objectives such as controlling inflation, managing employment levels, and ensuring financial stability. It involves the strategic use of monetary policy instruments to influence economic activity and maintain price stability over the medium term.

monetary policy framework

country's currency value

pegged to another major currency

basket of currencies

International trade involves the exchange of goods and services across international borders, driven by comparative advantage, which allows countries to specialize and increase their economic welfare. It is regulated by international agreements and organizations that aim to reduce trade barriers and promote fair competition.

international trade

Investment involves committing resources, typically money, to an endeavor with the expectation of generating a profit or income over time. It requires evaluating risk and potential return, and can be influenced by factors such as market conditions, economic trends, and individual financial goals.

investment

Exchange rate volatility refers to the degree of variation in the value of one currency relative to another over a specific period, impacting international trade, investment, and economic stability. It is influenced by factors such as interest rates, inflation, political stability, and market speculation, making it a critical consideration for businesses and policymakers engaged in global activities.

exchange rate volatility

A central bank is a national institution that manages a country's currency, money supply, and interest rates, playing a pivotal role in maintaining economic stability and financial system integrity. It typically has the authority to issue currency, regulate banks, and implement monetary policy to control inflation and support economic growth.

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