Fixed Exchange Rate

AAA

DEFINITION of 'Fixed Exchange Rate'

A country's exchange rate regime under which the government or central bank ties the official exchange rate to another country's currency (or the price of gold). The purpose of a fixed exchange rate system is to maintain a country's currency value within a very narrow band. Also known as pegged exchange rate.

INVESTOPEDIA EXPLAINS 'Fixed Exchange Rate'

Fixed rates provide greater certainty for exporters and importers. This also helps the government maintain low inflation, which in the long run should keep interest rates down and stimulate increased trade and investment.

RELATED TERMS
  1. Dual Exchange Rate

    A situation in which there is a fixed official exchange rate ...
  2. Floating Exchange Rate

    A country's exchange rate regime where its currency is set by ...
  3. Dirty Float

    A system of floating exchange rates in which the government or ...
  4. Big Mac PPP

    A survey done by The Economist that determines what a country's ...
  5. Crawling Peg

    A system of exchange rate adjustment in which a currency with ...
  6. Bretton Woods Agreement

    A landmark system for monetary and exchange rate management established ...
RELATED FAQS
  1. How are international exchange rates set?

    International currency exchange rates display how much one unit of a currency can be exchanged for another currency. Currency ... Read Full Answer >>
  2. How does the International Chamber of Commerce define the term 'Free on Board' (FOB)?

    The International Chamber of Commerce (ICC) is one of world's largest business organizations and has published a set of trade ... Read Full Answer >>
  3. What determines if an international trade is Ex Works (EXW) or Free on Board (FOB)?

    "Ex works" (EXW) and "free on board" (FOB) are international trade terms that dictate the responsibilities of buyers and ... Read Full Answer >>
  4. How are transportation costs and risks assigned in an Ex Works (EXW) trade?

    An ex works (EXW) trade agreement is part of the Incoterms rules and requires the sellers of goods to make the goods readily ... Read Full Answer >>
  5. What is the distinction between Free on Board (FOB) shipping point and destination?

    "Free on board (FOB) shipping point" and "free on board destination" are international trade terms that specify where the ... Read Full Answer >>
  6. What does the rule of 70 indicate about a country's future economic growth?

    The rule of 70 could be used to indicate the approximate number of years that it would take a company's economic growth to ... Read Full Answer >>
Related Articles
  1. Forex Education

    Currency Exchange: Floating Rate Vs. Fixed Rate

    Baffled by exchange rates? Wonder why some currencies fluctuate while others are pegged? This article has the answers.
  2. Forex Education

    Dollarization Explained

    Find out how fledgling economies can find some stability in their currency and attract foreign investment.
  3. Fundamental Analysis

    An Introduction To The International Monetary Fund (IMF)

    Chances are you've heard of the IMF. But what does it do, and why is it so controversial?
  4. Investing Basics

    What is a Nominal Value?

    The nominal value of a security, such as a stock or bond, remains fixed for the duration of its life.
  5. Economics

    Explaining the Human Development Index

    The Human Development Index (HDI) is a metric developed by the United Nations to take the emphasis off economic growth and focus on human wellbeing.
  6. Economics

    Gaining Market Influence-- The Case of US Shale

    A convergence of sustained bank financing, falling production costs and rising oil prices might position the US shale industry for a greater market role.
  7. Investing

    Why Some Investors Are Tilting Toward TIPS

    Last month’s five-year TIPS auction drew nearly $48 billion in interest, a sign of recent renewed demand for this inflation indexed asset among investors.
  8. Economics

    What is the International Monetary Fund?

    The International Monetary Fund fosters global monetary cooperation and sustainable economic growth.
  9. Economics

    Volatility In The Yen Has Brought On Big Changes

    There's a difference between translation effects and the real effects that FX swings bring. We look at the difference, and how it's changing Japan.
  10. Economics

    The Pros & Cons of a Trade Deficit

    Is a trade deficit, also known as a current account deficit, beneficial or detrimental to a country's economy?

You May Also Like

Hot Definitions
  1. Butterfly Spread

    A neutral option strategy combining bull and bear spreads. Butterfly spreads use four option contracts with the same expiration ...
  2. Unlevered Beta

    A type of metric that compares the risk of an unlevered company to the risk of the market. The unlevered beta is the beta ...
  3. Moving Average - MA

    A widely used indicator in technical analysis that helps smooth out price action by filtering out the “noise” from random ...
  4. Yield Curve

    A line that plots the interest rates, at a set point in time, of bonds having equal credit quality, but differing maturity ...
  5. Productivity

    An economic measure of output per unit of input. Inputs include labor and capital, while output is typically measured in ...
  6. Variance

    The spread between numbers in a data set, measuring Variance is calculated by taking the differences between each number ...
Trading Center