Concept Introduction:
Equilibrium in exchange market: It is the point where the demand for a currency is equal to the supply of a currency in the exchange market. Under the fixed exchange rate system, government intervention ensures such a point.
Fixed exchange rate: This is an exchange rate system under which there is an intervention by the government to control the fluctuation and this is known as fixed exchange rate.
Nominal exchange rate: The rate at which currencies are exchanged in the exchange market is known as the nominal exchange rate.
Flexible exchange rate: This is an exchange rate system under which there is no intervention by the government, rather the rate is determined by the demand and supply phenomenon.
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