Bryan Robinson T TH 1 pm Pegged Exchange Rate             A pegged exchange rate or fixed rate is set by the government. This is usually done to stabilize a countries currency. It can also be done as a way to prevent inflation. A fixed rate was implemented on the Chinese renminbi after the Asian currency crisis and was a useful tool in helping stabilize their economy. There has however been some controversy over fixed exchange rates.             Some countries feel that fixed currencies feel that the fixed exchange rates that were in effect before the crisis could have actually helped cause it. They feel that the currency was so immobile that it did not clearly state valuable information for the market to function the way it should. Some people feel that a floating exchange rate is the only way to have the market truly run efficiently. The concern with the pegged rate is that the government will not devalue the currency if need be.             It is important that countries that have a pegged rate maintain it properly. One of the ways a country can maintain its pegged rate is by either buying or selling its currency on the open market. In doing so it is important that the government keep reserves of foreign currencies, this way if the exchange rate starts to decline they have the reserve to buy some of their own currency. By buying their own currency it puts a demand on the market, thus driving the price back up to the rate that they desire. If the currency goes up too high they can also sell, creating less of a demand. I personally feel a floating exchange rate would be more efficient. This way we can see exactly what the currency is and is not doing.       Citations Shapiro, Alan C., and Atulya Sarin. Foundations of Multinational Financial Management. Sixth ed. Hoboken, NJ: John Wiley & Sons Inc., 2009. Fixed exchange rate. (2009, April 17). In Wikipedia, The Free Encyclopedia. Retrieved 01:17, May 14, 2009, from http://en.wikipedia.org/w/index.php?title=Fixed_exchange_rate&oldid=284411224