Flexible or Floating Exchange Rate Regime refers to an exchange rate regime where the demand for and supply of each currency in the foreign exchange market are allowed to determine the exchange rate. This means that the price (exchange rate) of a currency is free to move to the level that equates the quantity demanded of a currency to the quantity supplied. Under this regime, the market for foreign exchange works in the same way as the free market for any other good or service and it is assumed operate under perfect competition conditions applicable to other goods and services in a free market.
Fixed or Pegged Exchange Rate Regime refers to an exchange rate regime where the Central bank must stand ready to absorb any excess demand for and supply of its currency in order to maintain the pegged rate by controlling the outflow of local currency and at the same time try to ensure that all foreign currency inflows pass through its hands.
Zainabdawa answered the question on August 1, 2018 at 08:40
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