Fixed exchange rates influence a country’s trade balance by affecting the competitiveness of exports and imports. Exports are cheaper and more competitive internationally when the peg makes the currency undervalued. An overvalued peg makes imports cheaper and exports less competitive and decreases demand for the domestic currency in the Forex market. Trade-related currency flows in […]

A country’s currency value in a fixed exchange rate system is set and maintained by its central bank relative to an external benchmark, such as another currency or commodity like gold. The exchange rate remains stable and does not fluctuate freely according to market supply and demand. The role of the Forex market is less […]