'In case value of currency is lower as compared to value of USD' what does this line mean???
Explain using numerical example.
Does this mean that ₹1 = $1 in all cases????
Dear student,
The line is used in the context of the Bretton Woods system. Under the Bretton Woods system the monetary authority maintained a fixed exchange rate between their currency and the USD. The exchange rate was maintained by intervening in the foreign exchange market as and when required.
If the value of currency falls below the level that is fixed then the monetary authority would buy its own currency such that the exchange rate is brought back to the fixed level.
Yes, the foreign exchange rate would remain at the level $1= Rs 1(this is hypothetical value) but the central bank would have to interfere in the foreign exchange market to maintain this level.
The line is used in the context of the Bretton Woods system. Under the Bretton Woods system the monetary authority maintained a fixed exchange rate between their currency and the USD. The exchange rate was maintained by intervening in the foreign exchange market as and when required.
If the value of currency falls below the level that is fixed then the monetary authority would buy its own currency such that the exchange rate is brought back to the fixed level.
Yes, the foreign exchange rate would remain at the level $1= Rs 1(this is hypothetical value) but the central bank would have to interfere in the foreign exchange market to maintain this level.