In a flexible foreign exchange rate system the financial power - the central bank - regulates the exchange rate to influence the supply and demand for foreign currencies.
Fixed Exchange Rate System:
In a fixed foreign exchange rate system, the currencies are not unpredictable; in its place they are set to each other at an exacting rate. This process ideally prefers the central bank to be stacked with a big reserve of equal valued domestic and the foreign currency.
Whenever, there is a leaning for the forex market price creating expectation of the foreign currency to better in value, the central bank should sell that foreign currency in quantities that can avoid the price raise.
On the contrary, if the leaning of the foreign currency is in the downward trend, the central bank will have to purchase the foreign currency in amounts that will prevent the decrease of the price. It is for this reason, a set exchange rate system, the central bank is set to purchase and sell its domestic currency at a decided price in terms of the value of the foreign currency.
A Foreign Exchange Market:
The Foreign Exchange Market, or “Forex” market, is the major financial market in the globe with a standard daily return greater than 2 trillion US dollars (2,000,000,000,000). There were different types of foreign exchange systems ideally most of stuff are now between the fixed and the floating system.
The Forex market is the ground where currencies are exchanged and traded. Investors from all over the world buy or sell one currency for one another by trying to make some profits in the minor deviations of price as a consequence of market speculation.
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