The significance of exchange rates within the economy of any society cannot be over emphasized since it is a relevant price concept of any nation. Alterations in exchange rates can lead to massive reallocations of raw materials, resources as well as production between the tradable and non-tradable sectors of the economy of any Country. But seldom is the concept of the exchange rate truly depicted for what it truly is: A relative price, which like any other economic entity is responsive to the laws of supply and demand. When viewed from an approach of a price concept, the exchange rate, according to fundamental economic theories can then be evaluated and determined within an economic system, its behavior as well as its significance can then be understood by outlining and paying relevant attention to certain factors within the economic system that influence it.
In recent times, the IMF has emphasized the need for improved coordination of exchange rate and monetary policies in core areas of macroeconomic management in light of increasing capital mobility. In close relations, the advantages or merits of exchange rate regimes and its alternatives may best be argued in a coherent monetary order framework in terms of the interaction of monetary as well as exchange policies. Exchange rates and the exchange rate regimes are all but distinctive entities in a wider, more versatile set of arrangements termed as the monetary order hence, policies geared towards them should generally and ideally be discussed in this broader, more versatile context.
The adoption of an appropriate or adequate exchange rate regime is most times perceived as a complex and technical process. Several nations around the globe have adopted the floating...
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