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The exchange rate regime is the way a country manages its Currency in respect to foreign currencies and the Foreign Exchange Market . The basic types are a ''floating'' exchange rate, where the market dictates the movements of the exchange rate, a ''pegged float'', where the central bank keeps the rate from deviating too far from a target band or value, and the ''pegged'' exchange rate, which ties the currency to another currency, mostly more widespread currencies such as the U.S. Dollar or the Euro . Float ''See main article: Floating Exchange Rate '' Floating rates are the most common exchange rate regime today. For example, the Dollar, Euro, Yen , and British Pound all float. However, since central banks frequently intervene to avoid excessive appreciation/depreciation, these regimes are often called ''managed float''. Pegged float Here, the currency is pegged to some band or value, either fixed or periodically adjusted. Pegged floats are:
Fixed ''See main article: Fixed Exchange Rate '' Fixed rates are those that have direct convertibility towards another currency. In case of a separate currency, also known as a Currency Board arrangement, the domestic currency is backed one to one by Foreign Reserves . A pegged currency with very small bands (< 1%) and countries that have adopted another country's currency and abandoned its own also fall under this category. LITERATURE
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