Check out these other AP Macro resources
An Exchange Rate Regime is policy towards an exchange rate.
Exchange rates are the prices at which currencies trade.
- maintain a certain regime to make sure that their currency doesn't fluctuate as often with the business cycle
- maintain good net exports to make a positive impact on aggregate output & price level.
So what are the 2 exchange rate regimes? Well...
The Fixed Exchange Rate 💲
- the government maintains the exchange rate against another currency or commodity
- Hong Kong utilizes this regime
- typically, countries peg their exchange rates to the U.S. dollar or trading partners
The Floating Exchange Rate 📈
- the government lets the exchange rate go wherever the market takes it
- Britain & Canada utilize this regime
- this regime is controlled by demand & supply of a certain currency leading to depreciating and appreciating currency (it's a fun cycle😄)
Disclaimer: There is also a third regime, which is just a hybrid of the two regimes above. The U.S. uses this hybrid regime.