Pegging

AAA

DEFINITION of 'Pegging'

1. A method of stabilizing a country's currency by fixing its exchange rate to that of another country.

2. A practice of an investor buying large amounts of an underlying commodity or security close to the expiry date of a derivative held by the investor. This is done to encourage a favorable move in market price.

INVESTOPEDIA EXPLAINS 'Pegging'

1. Most countries peg their exchange rate to that of the United States.

2. An investor writing a put option would practice pegging so that he or she will not be required, due to lowering prices, to purchase the underlying security or commodity from the option holder. The goal is to have the option expire worthless so that the premium initially received by the writer is protected.

RELATED TERMS
  1. Exchange Rate

    The price of a nation’s currency in terms of another currency. ...
  2. Dollarization

    A situation where the citizens of a country officially or unofficially ...
  3. Underlying

    1. In derivatives, the security that must be delivered when a ...
  4. Option

    A financial derivative that represents a contract sold by one ...
  5. Crawling Peg

    A system of exchange rate adjustment in which a currency with ...
  6. Linked Exchange Rate System

    A system of managing a nation's currency and exchange rate by ...
Related Articles
  1. Why China's Currency Tangos With The ...
    Forex Education

    Why China's Currency Tangos With The ...

  2. Currency Exchange: Floating Rate Vs. ...
    Forex Education

    Currency Exchange: Floating Rate Vs. ...

  3. The Pros And Cons Of A Pegged Exchange ...
    Forex Education

    The Pros And Cons Of A Pegged Exchange ...

  4. Dual And Multiple Exchange Rates 101
    Forex Education

    Dual And Multiple Exchange Rates 101

comments powered by Disqus
Hot Definitions
  1. Halloween Massacre

    Canada's decision to tax all income trusts domiciled in Canada. In October 2006, Canada's minister of finance, Jim Flaherty, ...
  2. Zombies

    Companies that continue to operate even though they are insolvent or near bankruptcy. Zombies often become casualties to ...
  3. Witching Hour

    The last hour of stock trading between 3pm (when the bond market closes) and 4pm EST. Witching hour is typically controlled ...
  4. October Effect

    The theory that stocks tend to decline during the month of October. The October effect is considered mainly to be a psychological ...
  5. Repurchase Agreement - Repo

    A form of short-term borrowing for dealers in government securities.
  6. Correlation

    In the world of finance, a statistical measure of how two securities move in relation to each other. Correlations are used ...
Trading Center