Exchange Rate, Fixed Exchange Rate,Floating Exchange Rate in Bangladesh

perspective.

Course Title: International Economic Law

Course code: LLM 503

Under Supervision of
Md. Abdullah Al Mamun
Assistant Professor
SCHOOL OF LAW
CHITTAGONG INDEPENDENT UNIVERSITY

SABUJ BARUA
ID :20154001
Program : LLM
Semester : spring 2021
School of Law
Chittagong independent University
Date of Submission: 06 April 2021
Exchange rates of Taka for inter-bank and customer transactions are set
by the dealer banks, based on demand-supply interaction. Bangladesh
Bank (BB) is not in the market on a day-to-day basis, and undertakes
USD purchase or sale transactions with dealer banks at prevailing inter-
bank exchange rates only as needed to maintain orderly market
conditions. Inter-bank exchange rates are also used by BB for purchase
and sale transactions with the Government and different International
Organizations. The USD/BDT buying and selling rates below are highest
and lowest inter-bank exchange rates at Dhaka. The cross rates of BDT
with other foreign currencies are based on NY and Dhaka closing
exchange rates. Exchange Rates in Bangladesh Perspective Related
links search previous data from archive -- Select Currency-- --Select
Month-- --Select Year-- Print this page / Export data Dealer Banks rate
Declared Exchange Rates of Banks Rates of specific dealer banks may be
seen in their respective websites.Fixed exchange rates –  What are
fixed exchange rates? A fixed exchange rate – also known as a pegged
exchange rate – is a system of currency exchange in which the value of
one currency is tied to another. Debitoor invoicing software makes it
easy to invoice in different currencies, helping you reach customers
around the world. By pegging one currency to another, there is less
fluctuation when exchanging money or trading between countries.
Currencies with fixed exchange rates are therefore more stable and less
influenced by market conditions than currencies with floating exchange
rates. Fixed exchange rates can also be set by pegging a currency to a
group of other currencies or to a different measure of value, such as
the price of gold – although this is much less common. Examples of
fixed exchange rates Currencies with fixed exchange rates are usually
pegged to a more stable or globally prominent currency, such as the
euro or the US dollar.  For example, the Danish krone (DKK) is pegged
to the euro at a central rate of 746.038 kroner per 100 euro, with a
‘fluctuation band’ of +/- 2.25 per cent. This means that the euro to DKK
exchange rate must be with 2.25% of the central rate and cannot drop
below 729.252 DKK per 100 euro or exceed more than 762.824 per 100
euro. Fixed exchange rates and currency unions In some cases,
countries can be part of an informal currency union whereby multiple
countries share a single currency. Individual nations issue their own
coins and banknotes, which are pegged at par value – and are therefore
exchangeable with – the main currency.  For example, Gibraltar,
Jersey, and Guernsey are part of a currency union with the UK. This
means that Gibraltar pounds, Jersey pounds, and Guernsey pounds are
fixed to – and are exchangeable with – the British pound. However,
while the British pound can be used interchangeably with local
currencies, the Gibraltar pound, the Jersey pound, and the Guernsey
pound are not legal tender on the British mainland.  Pros and cons of
fixed exchange rates A fixed exchange rate system is designed to ensure
that the value of a currency stays within a very narrow range. This has
several advantages, particularly for smaller or developing economies.
The advantages of a fixed exchange rate include: Providing greater
certainty for importers and exporters, therefore encouraging more
international trade and investment. Helping the government maintain
low inflation, which can have positive long-term effects such as keeping
down interest rates. However, there are also several disadvantages of
fixed exchange rates, particularly for larger and more developed
economies.  The disadvantages of a fixed exchange rate include:
Preventing adjustments for currencies that become under- or over-
valued. Limiting the extent to which central banks can adjust interest
rates for economic growth. Requiring a large pool of reserves to
support the currency if it comes under pressure. Fixed exchange rates
in Debitoor Debitoor accounting & invoicing software gives you the
tools for professional invoicing, wherever your customers are based.
With Debitoor, you can tailor your invoice templates for customers
abroad and send invoices in different currencies with accurate and up-
to-date exchange rates. You also have the option to set fixed exchange
rates by entering your own values.Floating Exchange Rate-  A floating
exchange rate is an exchange rate system where a country’s currency
price is determined by the foreign exchange market, depending on the
relative supply and demand of other currencies. A floating exchange
rate is not restrained by trade limits or government controls, unlike a
fixed exchange rate. Floating Exchange Rate Summary A floating
exchange rate refers to an exchange rate system where a country’s
currency price is determined by the relative supply and demand of
other currencies. Currencies with floating exchange rates can be traded
without any restrictions, unlike currencies with fixed exchange rates.
Although the floating exchange rate is not entirely determined by the
government and central banks, they can intervene to keep the currency
at a favorable price for global trade. Functions of a Floating Exchange
Rate A floating exchange rate functions in an open market where
speculations, along with demand and supply forces, drive the price.
Floating exchange rate structures mean that changes in long-term
currency prices represent comparative economic strength and
differences in interest rates across countries. Changes in the short-term
floating exchange rate represent disasters, speculations, and the daily
supply and demand of the currency. In the graph below, an increased
currency supply from S1 to S2 at the same demand D1 implies that the
currency-pair price will depreciate. In contrast, increased demand from
D1 to D2 at the same supply S1 will lead to currency appreciation. 
Floating Exchange Rate - Functions Market sentiment towards the
economy of a country affects how strong or weak the floating currency
is perceived. For example, a country’s currency is expected to
depreciate if the market views the government as unstable. Although
the floating exchange rate is not entirely determined by the
government, they can intervene when the currency is too low or to high
to keep the currency at a favorable price.  Benefits of a Floating
Exchange Rate 1. Stability in the balance of payments (BOP) A balance
of payments is in the statement of transactions between entities of a
country and the entities of the rest of the world over a time period. In
theory, any imbalance in that statement automatically changes the
exchange rate. For example, if the imbalance is a deficit, it would cause
the currency to depreciate. The country’s exports would become
cheaper, resulting in an increase in demand and eventually attaining
equilibrium in the BOP. 2. Foreign exchange is unrestricted Floating
exchange rate currencies can be traded without any restrictions, unlike
currencies with fixed exchange rates. Hence, governments and banks
do not need to resort to a continuous management process . 3.
Market efficiency enhances A country’s macroeconomic fundamentals
affect the floating exchange rate in global markets, influencing the flow
of portfolios between countries. Thus, floating exchange rates enhance
the efficiency of the market. 4. Large foreign exchange reserves not
required For a floating exchange rate, central banks are not required to
keep large foreign currency reserve amounts for defending the
exchange rate. Hence, the reserves can be utilized for promoting
economic growth by importing capital goods. 5. Import inflation
protected Countries with fixed exchange rates face the problem of
importing inflation through surpluses of the balance of payments or
higher prices of imports. However, countries with floating exchange
rates do not face such a problem.  Limitations of a Floating Exchange
Rate 1. Exposed to the volatility of the exchange rate Floating exchange
rates are prone to fluctuations and are highly volatile by nature. A
currency value against another currency may deteriorate only in one
trading day. Furthermore, the short-term volatility in a floating
exchange rate cannot be explained through macroeconomic
fundamentals. 2. Restricted economic growth or recovery The lack of
control over floating exchange rates can limit economic growth or
recovery. The negative currency exchange rate movements may lead to
serious issues. For example, if the dollar rises against the euro, it will be
more difficult to export to the eurozone from the U.S. 3. Existing issues
may worsen If a country is suffering from economic issues, such as
unemployment or high inflation, floating exchange rates may intensify
the existing problems. For example, depreciation of a country’s
currency already suffering from high inflation will cause inflation to
increase further due to an increase in demand for goods. Moreover,
expensive imports may worsen the country’s current account.