Fisher Investments Press: Own the World: Wrangling Exchange Rates

While exchange rates are set in free markets by supply and demand, this isn’t entirely true. Although the part about supply and demand is accurate, classifying currency markets as “free” is somewhat of a stretch. Governments (lumping governments and central banks together here) can have enormous influence over currency markets, and many can actively buy and sell currencies to try to keep exchange rates where they want. Even governments with the most hands-off approach have been known to try nudging currencies one direction or another.

Generally, currencies are either pegged, managed, or allowed to float. But the lines separating these categories can be quite blurry. And governments often change their approaches to currency management, so a currency that was once pegged might be allowed to float or vice versa. Fisher Investments feels knowing how these approaches differ is important to knowing not only how your investments are performing, but they also might influence where you decide to invest.