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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 and 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.
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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.
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Baffled by exchange rates? Wonder why some currencies fluctuate while others are pegged? This article has the answers.
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Why would a country choose to implement dual or multiple exchange rates? It's risky, but it can work.
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Congress often debates pressuring China to appreciate its currency, but the yuan/dollar peg has benefits for both countries.
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A pegged currency can give a country many advantages, but these advantages come at a price.
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Take advantage of foreign currency markets without stepping out of your house.
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