Page 39 - FINAL CFA I SLIDES JUNE 2019 DAY 6
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Session Unit 5:
LOS 20.i: Describe exchange
rate regimes, p.163 20. Currency Exchange Rates
With formal dollarization, a In a system of pegged exchange rates within horizontal bands
(e.g., ±2 %).
country uses the currency of
another country.
In a monetary union, several With a crawling peg, the exchange rate is adjusted
countries use a common periodically, typically to adjust for higher inflation versus the
currency. currency used in the peg.
Own currency:
With a system of managed floating exchange rates, the
A currency board arrangement
monetary authority attempts to influence the exchange rate in
is an explicit commitment to
exchange domestic currency for response to specific indicators, such as the BOP, inflation rates,
a specified foreign currency at a or employment without any specific target exchange rate.
fixed exchange rate.
When a currency is independently floating,
the exchange rate is market-determined.
