Choosing an Optimal Forex Rate

Keyword - Forex Rate

Choosing an optimal exchange rate is very necessary in the current scenario. The market
is subjected to a lot of volatility and there are major issues around the globe hence
selecting the appropriate exchange rate is an essential requirement of the business. The
free floating method and tight fixation are the methods available to the investor and
business.
In 1982 the exchange rate regime was approved by the IMF which was completely based
on self determination of the national money authorities. The rule is that both the central
bank and the Finance Ministry of a country has 30 days to intimate the IMF about the
change that has been done such as changes which are made in the national currency
exchange rate. An official statement will make it possible to know about the change in
the forex rate. From the point of view of the flexibility there are three main categories i)
Fixed exchange rate ii) Managed floating exchange rate iii) Floating exchange rate.
The major advantage of the classification is that it is based on simplicity, selection
countries in statistical form and also analyses of forex rates in the long term. Hence from
this empirical analysis is easy and able to be performed.
But the classification also contains some disadvantages. Firstly it is very difficult to
capture the mild adjustments or to classify it. Another thing which is noted is that the
classification ignores the monetary policies which tend to change in the countries keeping
the same exchange rates. Secondly it is also seen that the loopholes between the nominal
and the actual exchange rate gets neglected. The country often adopts a mix kind of
policy; it may work with a fixed rate. The devaluation may happen with the forex rate
acting as the regulator when it comes to competitiveness of the national export. On the
other hand the rest of the country is following a fixed exchange currency rate. Hence this
was the policy that the government followed which enables it to keep a check on the
political expenses and also the loss of trust which occurs due to devaluation.
It is noted that when a country has a unified exchange rate system then the official rate of
the currency is set by the authorities of the country. But it is seen that if the economic
agents pays a lot of heed to variety of forex rate then importance is attached to parallel
exchange market.
Polarization of forex rate is very popular and also named incompatible trinity. Hence a
country will be able to ensure that only two conditions out of three are
ensured.Integration of the forex rate is essential because it determines the equilibrium of
the currency.
Therefore before dealing I currency it must be carefully observed that which forex rate is
operating and what are the benefits of it. This will lead to a big response.
Optimal Forex rate is vital because the country as well as the investors needs to make
huge profit from the investors. Hence the forex rate is analyzed.