What Are The Two Major Types Of Exchange Rates?

So far your question is concerned that what are the two major types of exchange rates can be answered in the following manner. There are two major exchange rate systems, and they have an important impact on macroeconomic policy. One basic system occurs when exchange rates move purely under the influence of market supply and demand.

This system, known s flexible exchange rates, is one where governments neither announce an exchange rate nor take steps to enforce one. That is, in a flexible exchange rate system, the relative prices of currencies are determined in the marketplace through the buying and selling of households and businesses. The United States, Canada, and Japan currently operate flexible exchange rate systems.

The other major system is fixed exchange rates, where governments specify the rate at which their currency will be converted into other currencies. Historically the most important fixed exchange rate system was the gold standard, which was used off and on from 1717 until 1933. Today many small countries operate fixed exchange rate systems, and most European countries have had their own system of fixed exchange rates since 1979.