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. Capping

    1. The practice of selling large amounts of a commodity or security ...
  4. Commodity

    1. A basic good used in commerce that is interchangeable with ...
  5. Expiration Date

    The last day that an options or futures contract is valid. When ...
  6. Currency

    A generally accepted form of money, including coins and paper ...
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. Ghosting

    An illegal practice whereby two or more market makers collectively attempt to influence and change the price of a stock. ...
  2. Elasticity

    A measure of a variable's sensitivity to a change in another variable. In economics, elasticity refers the degree to which ...
  3. Tangible Common Equity - TCE

    A measure of a company's capital, which is used to evaluate a financial institution's ability to deal with potential losses. ...
  4. Yield To Maturity (YTM)

    The rate of return anticipated on a bond if held until the maturity date. YTM is considered a long-term bond yield expressed ...
  5. Net Present Value Of Growth Opportunities - NPVGO

    A calculation of the net present value of all future cash flows involved with an additional acquisition, or potential acquisition. ...
  6. Gresham's Law

    A monetary principle stating that "bad money drives out good." In currency valuation, Gresham's Law states that if a new ...
Trading Center