This type of exchange rate regime is maintained by generally smaller economies like Nepal and Bhutan (pegged to Indian Rupee) or several African nations.Rational behind such regime is that in case of small economy – if the exchange rate is market determined – the sudden influx or outflux of even relatively small amount of foreign capital will have large impact on exchange rate and cause instability to its economy.All economies that interact with international economy can be broadly classified into three categories on the basis of exchange rate policy of the country. These economies peg the value of their currency with some other prominent currency like US dollar.
But the American company will not have Yen, so it will purchase Yen from the international currency market.
This will increase the demand of Yen and supply of dollar.
According to him, it takes around 4-5 months for consignment to arrive at his store, and by the time products are delivered to him, value of rupee gets devalued and he has to pay at current exchange rate but his customers will pay him only in printed MRP.
I did not believe him completely for the difference in amount he told me was far more than the actual devaluation of rupee in last 6 months.
Once the market determined rate tries to breach this range, central bank (government) intervenes in the currency market and controls the exchange rate.
In fixed or hybrid exchange rate regime where government controls exchange rate, control is exercised by actively participating in international currency market through its central bank (Reserve Bank of India or RBI in our case). This might encourage many new people to by i Pad which earlier thought it to be too expensive.Suppose there is huge demand of rupee in India which is driving the value of rupee. large number of Indians earning abroad are remitting their money back home) is pushing the exchange rate below Rs. The RBI will then step in the market and will offer Rs. Those buying rupees against dollar will now purchase from RBI since its offering better rate. Thus, the demand for imported products will increase in appreciating currency and will drive imports upward. This records all the trades (export-import), remittances, interests and earnings on investments made into out side countries and other flows which is current in nature (meaning with no intention of future return).Also, lets assume that RBI is comfortable only in range of Rs 50 to Rs. This rapid surge in the demand of rupee (which might be because a. Soon other traders will have to arrive at this rate, if they want to participate. This will repel US importers and might drive them to other rival exporters whose garments are cheaper. If total inflows in the country (its export, remittances and earning from its investments abroad) is more than its outflows (its import, remittances out of the country, payments of interests etc.) then the country is said to have current account surplus.If US wants to import certain item from Japan, it will have to pay the Japanese company in Japanese yen.This is because in common market of Japan, dollar will not fetch you anything.body a body, h1, h2, h3, h4, h5, h6, p, a, ul, li, form ul, li, form a img a:active, a:visited a.active, a:hover .clear /*Header*/ .nglobalnav_wrap_cont .neweleccont .neweleccont .newcont1 .neweleccont .newcont1 .newcont2 .neweleccont .newcont1 .newcont2 .newcont3 .nglobalnav_wrap .nglobalnav_wrap .nglobalnav .nglobalnav_wrap .nglobalnav a .nglobalnav_wrap .nglobalnav a:hover .bgmasthead .topsponsors_wrap .budgetlogo2016cont .topsec_sponsors_wrap_new .topstories-cont .bud_widget .bud_widget .ntopnav_wrap .noshadow .ntopnav_wrap2 .topnav_cont .ntopnav_wrap2 .topnav_cont a:hover .ins_lftcont930 .ins_page_header_wrap .ins_page_header h2 .ntopnav_wrap .ndtvlogo .ntopnav_wrap .topnav_cont .topnav_cont ul .topnav_cont ul li .ntopnav_wrap .topnav_cont a.select, .ntopnav_wrap .topnav_cont a.active .ntopnav_wrap .topnav_cont a .ntopnav_wrap .topnav_extra .ntopnav_wrap .topnav_extra .socialicon .ntopnav_wrap .topnav_extra .socialicon .break_fb, .ntopnav_wrap .topnav_extra .socialicon .break_tw, .ntopnav_wrap .topnav_extra .socialicon .break_mail .ntopnav_wrap .topnav_extra .socialicon .break_tw .ntopnav_wrap .topnav_extra .topnavmore .ntopnav_wrap2 .ntopnav_wrap2 .topnav_cont .topnav_cont ul li span .topnav_cont ul li ul .topnav_cont ul li ul li .ntopnav_wrap .topnav_cont a .topnav_cont ul li ul li a .ntopnav_wrap .topnav_cont a:hover .topnav_cont ul li:hover .topnav_cont ul li:hover span .ntopnav_wrap2 .topnav_cont a .sticky .ndtvlogo img /*Footer CSS*/ .newcont .newcont .newcont1 .newcont .newcont1 .newcont2 .Last day I was talking to the owner of an electronic devices store.Thus the value of Yen vis a vis dollar will increase.Similarly if Japanese company is importing something from US, it will increase value of dollar as compared to Yen.He was explaining how for some of the items he sells, his selling price is less than his actual purchase price.For imported items (like Toshiba laptops in this case) the amount he has to pay is in dollars but the Maximum Retail Price advertised by the company and printed on its catalog are in rupee.