Financial markets/ Financial markets : Exchange Rate Regimes

Overview
The wide variety of exchange rate regimes in actual use may be classed by degree of flexibility into three broad types: fixed exchange rate regimes, freely flexible (floating) exchange rate regimes, and managed (or dirty) float regimes. With a fixed-exchange rate, the state sets exchange rates relative to a single currency (such as the U.S. dollar) or to a basket of currencies at a value that is either fixed or allowed to vary within a narrow trading band. In a freely flexible regime, exchange rates are determined by the market, that is by supply and demand, without state intervention. The managed float is a hybrid regime that combines free flexibility with state intervention in order to dampen exchange rate fluctuations and supervise currency stability.