4.5.1 Types of Exchange Rate Systems | SL IB Economics Revision Notes 2022 (2024)

FAQs

What is a fixed exchange rate in ib economics? ›

Fixed exchange rate: the central bank buys and sell foreign currencies to ensure that the value of its currency remains at a single fixed rate. Revaluation: the price of the currency is deliberately increased in a fixed exchange rate system.

In the IB Economics macroeconomics section of the course, attention focusses on the general price level of an economy and not the individual prices of goods and services it constitutes. The total demand for goods and services are examined, and not individual consumer demand or the market demand for individual products.

A floating exchange rate is one that is determined by supply and demand in the open market. A floating exchange rate doesn't mean countries don't try to intervene and manipulate their currency's price, since governments and central banks regularly attempt to keep their currency price favorable for international trade.

The euro is rated as a major reserve currency and is in the same league as the Japanese yen, US dollar, British pound, and Swiss franc. The exchange rate for the euro is a floating or flexible rate.

Besides, fixed, flexible, and managed floating exchange rate systems, the other types of exchange rate systems are: Adjustable Peg System: An exchange rate system in which the member countries fix the exchange rate of their currencies against one specific currency is known as Adjustable Peg System.

It can be decided via three methods which are : fixed exchange rate, managed floating exchange rate or pegged exchange rate, and flexible exchange rate.

Is the U.S. Dollar a Fixed or Floating Exchange Rate? The U.S. dollar is a floating currency, much like most of the major currencies in the world. The value of the dollar floats with its demand in the global currency markets. At one point, the U.S. dollar was a fixed currency with its peg to the value of gold.

Another reason why IB Economics may be perceived as difficult is its comprehensive nature. The course covers various topics in microeconomics, macroeconomics, international economics, and development economics. There is a lot of content to learn in a limited time.

How to do well in ib economics? ›

When studying for IB Economics, practise using the economic terms in context. This will help you remember the terms and understand the material better in the exams. Be sure to memorise all definitions and use mnemonic aids when needed. Also, use visual aids such as diagrams or drawings to illustrate each concept.

Paper 1 is basically an essay. i.e. the examiners for this part of your IB want to see extended responses. The duration of the assessment is 1 hour and 15 minutes regardless of your Level, plus you will have 5 minutes to read the questions.

The currency rises or falls freely. A clean float, also known as a pure exchange rate, occurs when the value of a currency is determined purely by supply and demand. A managed currency is one whose value and exchange rate are affected by the intervention of a central bank.

Trade Balance Adjustment: A floating exchange rate can help correct trade imbalances over time. If a country is running a large trade deficit, its currency's depreciation can eventually make its exports more price competitive and imports more expensive, leading to a narrowing of the deficit.

An example of a floating exchange rate is USD/JPY, trading at 140. This shows that every U.S. dollar is exchanged for 140 Japanese yen.

A fixed exchange rate is a regime imposed by a government or central bank which ties the official exchange rate of the country's currency with the currency of another country or the gold price. A fixed exchange rate system has the aim of keeping the value of a currency within a narrow band.

A fixed exchange rate denotes a nominal exchange rate that is set firmly by the monetary authority with respect to a foreign currency or a basket of foreign currencies. By contrast, a floating exchange rate is determined in foreign exchange markets depending on demand and supply, and it generally fluctuates constantly.

The U.S. dollar is a floating currency, much like most of the major currencies in the world. The value of the dollar floats with its demand in the global currency markets. At one point, the U.S. dollar was a fixed currency with its peg to the value of gold.

In contrast to the nominal exchange rate, the real exchange rate is always ”floating”, since even in the regime of a fixed nominal exchange rate E, the real exchange rate R can move via price-level changes.