What Is Target Zone Agreement

Money market coverage. As a speculative market in advance, a money market speculator also uses a contract and a source of funds to fulfill this contract. However, in this case, it is a loan agreement. The MNC, which participates in the guarantee credits, registers the proceeds in one currency and exchanges the proceeds for another currency. Target zone regimes can be considered to be halfway between fixed and flexible exchange rates. This type of exchange rate system therefore allows for relatively stable trading conditions between countries, while allowing for some fluctuation in exchange rates depending on economic conditions and relative trade flows. The regulation of target areas is an international monetary agreement in which countries would commit to keeping their exchange rates within a certain range in order to maintain agreed fixed and central exchange rates. A target zone regime is an agreed exchange rate system whereby some countries commit to maintaining their exchange rates within a given fluctuation margin or fluctuation margin. These margins can be set in relation to another currency, a cooperation agreement (for example. B.dem ERMII) or a basket of currencies. However, the range of this margin can vary and break two different versions: the possibilities of such profitable monetary arbitrage have been significantly reduced in recent years, given the vast network of people – supported by high-speed computerized information systems – who collect, compare and act continuously in all financial markets. The practice of quoting prices against the dollar makes monetary arbitrage even easier.

The result of this activity is that the prices of a given currency are generally the same everywhere, with minimal deviations due to transaction costs. The technical forecast of exchange rates is similar to the technical forecast of share prices. If the monetary value model appears random over time, the technical prognosis is not appropriate. If there are no historical trends in exchange rate developments, studying past movements will not be useful in indicating future movements. Technical factors have sometimes been cited as the main reason for the change in speculative positions that cause an adjustment in the value of the dollar.

This entry was posted in Uncategorized. Bookmark the permalink.

Comments are closed.