What are the three types of exchange rates?

The choice of exchange rate system depends on a country's economic objectives and circumstances. Each system has its advantages and disadvantages, and countries may adjust their policies over time to respond to changing economic conditions.

The concept of foreign exchange rates is central to international trade and finance. It refers to the value of one currency relative to another, determining the cost of purchasing goods and services from other countries.

One type of exchange rate system is a floating exchange rate, where the value of a currency is determined by market forces of supply and demand. This system allows for flexibility and can respond quickly to economic changes.

In contrast, a fixed exchange rate is when the value of a currency is pegged to another currency or a basket of currencies, often with the support of a central bank. This system aims for stability and predictability but can be vulnerable to speculative attacks.

A managed exchange rate is a hybrid system where the central bank intervenes in the foreign exchange market to influence the value of its currency, but not as strictly as in a fixed rate system. This allows for some flexibility while still maintaining a degree of control.