Exchange rate policies in developing countries
In this chapter we will look at issues related to an open economy, that is an economy which trades in goods, services and assets with the rest of the world. For such international transactions, the monetary authorities have to decide on the important issue of what exchange rates to use between their country’s currency and the currencies of other countries. There are various exchange rate arrangements that a country can adopt, and each one has different consequences for monetary and credit control and the insulation of the domestic economy from various exogenous shocks.
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