Question

Please briefly describe what are pegged exchange rates ?

Answer 1

Pegged exchange rates are those exchange rates when exchange rates are fixed against one another and they are not allowed to fluctuate through the regular demand and supply so they will not be following with the floating interest rate regime and they will be following up with the fixed interest rate regime.

Interest rate are pegged in order to have a stability in the economy and they are fixed because the government does not want the volatility in the domestic currency so they are following fixed rate regime of the interest rate and they are not incorporating floating rate regime which will be implementing the demand and supply for deciding upon the change in the exchange rate.

For example, one Rupee will be fixed with $50 and it will not be changed even after various change in underlying situation in the economy