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Exchange rate system

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List three factors relevant for a country's choice of an exchange rate system. Using the US as an example, explain how these factors may have affected US policy regarding floating exchange rates.

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This solution discusses exchange rate systems.

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The exchange rate is the rate through which one nation exchanges its currency with the currency of other nation. The exchange rate of a country can be fixed or floating. But in the current environment, the fixed exchange rate is not possible as all countries have to perform their business activities in another country. Following are the factors, which are relevant for a country's choice of an exchange rate system -

• Credibility of monetary policy ...

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