Excerpt from: Forex Training
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| October 06, 2008 | | Looking at a linked exchange rate system |
When reading about countries and their currencies, you may come
across the forex trading term "linked exchange." A linked exchange rate
system is an interesting system in which one currency is linked to
another, set at a specific rate -- or range of rates. For example, the
many currencies in the Middle East have a set link (or peg) the the
U.S. dollar. The Hong Kong dollar is also linked to the performance of
the U.S. dollar.
It is important to realize that a linked exchange rate system is
not the same as a fixed system. In a fixed system, the central banks
interferes regularly to cause the value of a currency to change or
remain constant.
In a linked exchange rate system, the central bank
does not do much to interfere, beyond setting the linked exchange rate.
| Topic Tags: exchange rate, forex trading, forex trading term, Hong Kong dollar, linked exchange rate, rate system, U.S. dollar | |
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