Finance Train Logo
Menu

Learn

Resources

Foreign Exchange Rate Systems and Parity Relationships

There are two major categories of exchange rate systems:

  • Flexible or Floating – laws of supply and demand determine currency value
  • Fixed – the government pegs the exchange rate value and actively participates in currency markets to maintain the value

The market quotes nominal exchange rates whereby a unit of once currency can be exchanged for some amount of another currency.  The real exchange rate reflects the price level differentials of the currencies being exchanged.

Real Exchange Rate Foreign/US =

Nominal Exchange Rate Foreign/US x (Price Level US / Price Level Foreign)

Previous Lesson

Balance of Payments

Next Lesson

Foreign Exchange Floating Rate Systems

Data Science for Finance Bundle

Data Science for Finance eBooks Bundle
$56.99$39

Learn the fundamentals of R and Python and their application in finance with this bundle of 9 books.

Get the Bundle
Economics

20 lessons

01
CFA Level 2: Economics - Introduction
02
Economic Growth
03
Changes in Productivity: The One-Third Rule
04
The Productivity Curve
05
Economic Growth Theories
06
Government Regulation, Deregulation, and Regulatory Behaviour
07
Gross Domestic Product (Measuring Economic Activity)
08
International Trade & Trade Restrictions
09
Balance of Payments
10
Foreign Exchange Rate Systems and Parity Relationships
11
Foreign Exchange Floating Rate Systems
12
Fixed Exchange Rate Systems
13
Overview of Currency Markets
14
Forward Exchange Rates
15
Interest Rate Parity
16
Purchasing Power Parity (PPP)
17
International Fisher Relation
18
Uncovered and Covered Interest Rate Parity Relationship
19
Forecasting Exchange Rates
20
CFA Level 2 Economics – Recommendations

Topics

Financial Analysis