Net Exports and International Finance
3. Exchange Rate Systems
KEY TAKEAWAYS
- In a free-floating exchange rate system, exchange rates are determined by demand and supply.
- Exchange rates are determined by demand and supply in a managed float system, but governments intervene as buyers or sellers of currencies in an effort to influence exchange rates.
- In a fixed exchange rate system, exchange rates among currencies are not allowed to change. The gold standard and the Bretton Woods system are examples of fixed exchange rate systems.