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Foreign Exchange Market - How is it determined?

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A. How is the Foreign Exchange Rate for a country Determined?

B. Is the Foreign Exchange Market Efficient? Discuss.

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Solution Summary

Foreign Exchange Market is discussed step-by-step in this solution. The response also includes the sources used.

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Step 1.
Foreign exchange rates are determined through the interaction of buyers and sellers in the foreign exchange market. Currency trading takes place round the clock. The currency rate is determined by the market forces. However, where there is a fixed exchange rate then a currency's value is fixed against another currency or a basket of currencies. In case of a linked exchange rate, the exchange rate of one currency is linked to the exchange rate of another. In the managed float regime the central banks influence the ...

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