Exchange Rate Evaluation

Running head: EXCHANGE RATE EVALUATION
Exchange Rate Evaluation
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EXCHANGE RATE EVALUATION1
Exchange rate is the number of units of one currency that is required to purchase one unit of
another currency.
The following are the exchange rates of three international currencies with respect to dollars:
1 U.S. Dollar = 4.13 Malaysian Ringgit
1 U.S. Dollar = 0.789 British Pound
1 U.S. Dollar = 6.847 Chinese Yuan
1 U.S. Dollar = 0.984 Swiss Franc
A fixed exchange rate is a system in which the central monetary authority of a country or the
country’s government fixes or pegs the value of that country’s currency against the value of
another country’s currency (Born, Juessen & Müller, 2013).
A floating exchange rate is a system in which the market forces of demand and supply
determine the exchange rate between two countries.
The Malaysian Ringgit follows a free-floating exchange rate regime. However, ringgit cannot
be traded outside of the country. In was in the year 1998 that the value of ringgit with respect
to dollars fluctuated between 3.80 and 4.40. At the time, Bank Negara Malaysia pegged
ringgit to US Dollars. However, currently, it is not pegged to any other currency ("Online
Trading & FX For Business | OANDA" 2019).
The British Pound sterling is currently a free-floating currency. In the year 1940, the pound
had been pegged to US Dollar and it had also been made part of the system of Bretton
Woods. However, it was in 1971 that pound was converted into a free-floating currency. In
the year 1990, the UK was included to be a part of the European Exchange rate mechanism.
However, the UK withdrew from in it in 1992 ("Online Trading & FX For Business |
OANDA" 2019).