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Fixed Exchange Rate - ?s

  • Post #1
  • Quote
  • First Post: May 15, 2007 3:50pm May 15, 2007 3:50pm
Okay, I have a question. Could someone elaborate on Fixed Exchange Rates? I will reference where my question originated. The Hong Kong Dollar is fixed against the US$. At least, this is what multiple sites online state.

Back in Dec. of 2005, the USD/HKD pair went down to the very limit (actually slightly beyond) it's fixed exchange (7.7497). The range since May of 2005 has been set at 7.75 - 7.85. So, when this pair was at this low ... where was the speculation that it would not go back up? Can these Fixed Exchange Rates be broken? Say, if Hong Kong Treasury or whom ever ran out of funds? I suppose if they want the rate fixed they would themselves have to over ride the basic markets supply and demands no?

Second question: is there a source I can discover what other currencies have Fixed Exchange Rates?
The market is my nation. Traders, my family. Hello, brothers and sisters!
Well, the HKD isn't quite fixed...it's just not completely free-floating. However, for the most part, it is fixed and that's just something that the Chinese government felt like doing. Since it's fixed, it prevents wild fluctuations, which actually gives Chinese companies a competitive advantage since it artificially lowers the price for Chinese goods outside of China. This makes Chinese exports very cheap.

If the HKD were to float freely, it would surely climb against the other majors, thus raising the price for Chinese exports, which would subsequently slow the demand for chinese exports.

Quoting StockKJay
Okay, I have a question. Could someone elaborate on Fixed Exchange Rates? I will reference where my question originated. The Hong Kong Dollar is fixed against the US$. At least, this is what multiple sites online state.

Back in Dec. of 2005, the USD/HKD pair went down to the very limit (actually slightly beyond) it's fixed exchange (7.7497). The range since May of 2005 has been set at 7.75 - 7.85. So, when this pair was at this low ... where was the speculation that it would not go back up? Can these Fixed Exchange Rates be broken? Say, if Hong Kong Treasury or whom ever ran out of funds? I suppose if they want the rate fixed they would themselves have to over ride the basic markets supply and demands no?

Second question: is there a source I can discover what other currencies have Fixed Exchange Rates?
Quoting mrmikal
Well, the HKD isn't quite fixed...it's just not completely free-floating. However, for the most part, it is fixed and that's just something that the Chinese government felt like doing. Since it's fixed, it prevents wild fluctuations, which actually gives Chinese companies a competitive advantage since it artificially lowers the price for Chinese goods outside of China. This makes Chinese exports very cheap.

If the HKD were to float freely, it would surely climb against the other majors, thus raising the price for Chinese exports, which would subsequently slow the demand for chinese exports.
This is true. However, it still does not make sense to me how a country can announce or state their window. The HKMA set upper and lower bounds of 7.75 and 7.85. Being that this is true, would a speculator such as myself not just watch the currency and trade heavily at these levels? Or can these levels readily change?

It all seems a tad bit confusing. I do not quite understand why a government would announce a trading range. Then if that range it met just overload the market with activity to push it into the opposite direction. Sounds like good low risk trading to me.

Thanks for the response .
The market is my nation. Traders, my family. Hello, brothers and sisters!
  • Post #4
  • Quote
  • Last Post: May 31, 2007 11:26am May 31, 2007 11:26am
Given that fixed exchange rates have barriers, these pairs ex. USD/HKD stay within a fairly tight range. One would have far more confidence trading scale in or grid methods knowing that there are upper and lower levels that the currency will likely not pass? Or am I not understanding something correctly? The fact that USD/HKD went just a mere 3 pips beyond the barrier that the Hong Kong government had in place tells me that these are ultimate resistance areas that one knows ahead of time what they are.
The market is my nation. Traders, my family. Hello, brothers and sisters!
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