fixed exchange rates how are they managed?

• What is the main topic of this video?

  The key difference between fixed and floating rates
• Where has the concept of a floating exchange rate previously been covered by the video creator?

  In one of the previous videos
• According to a previous video, what determines the value of a floating exchange rate?

  Forces of demand and supply for currency
• What effect does increased demand have on a floating currency?

  It appreciates the currency
• What effect does increased supply have on a floating currency?

  It depreciates the currency
• What is the primary focus of the current video?

  Fixed exchange rates
• What is required for a fixed exchange rate to be maintained?

  Large amounts of currency reserves
• What types of currency reserves are required to maintain a fixed exchange rate?

  Domestic and foreign currency reserves
• What is the purpose of holding currency reserves when maintaining a fixed exchange rate?

  To manipulate demand and supply
• To reduce the value of an overvalued pound, what action does the government or central bank need to take?

  Sell pounds and buy foreign currency
• What is the effect of selling pounds and buying foreign currency on the supply of pounds?

  It increases the supply of pounds
• To increase the value of an undervalued pound, what action does the government or central bank need to take?

  Buy pounds using foreign currency
• What is the effect of buying pounds using foreign currency on the demand for pounds?

  It increases the demand for pounds
• What can a government do if it wants to change the fixed exchange rate?

  It can devalue or revalue it
• What term is used when a floating exchange rate falls in value?

  Depreciation
• What term is used when a floating exchange rate rises in value?

  Appreciation
• What term describes a decrease in the value of a currency in a fixed exchange rate system?

  Devaluation
• What term describes an increase in the value of a currency in a fixed exchange rate system?

  Revaluation
• What is a potential reason for a government to devalue its currency?

  To improve trade performance
• What is a potential reason for a government to revalue its currency?

  To fight higher inflation
• What type of intervention is necessary to maintain a fixed exchange rate?

  Government intervention
• What is the key characteristic of a floating exchange rate?

  No government intervention at all
• Besides currency reserves, what is another theoretical way to maintain a fixed exchange rate?

  Manipulate interest rates
• How could lowering interest rates theoretically reduce the value of an exchange rate?

  It increases supply of the currency
• How could increasing interest rates theoretically increase the value of an exchange rate?

  It increases demand for the currency
• Why is interest rate manipulation not a preferred method for maintaining a fixed exchange rate?

  It has major side effects
• Why is buying and selling currency using currency reserves generally favored over interest rate manipulation?

  It is more direct and controlled
• When was the pound fixed to the dollar?

  In the 1970s