When the foreign exchange market determines the relative value of a currency,it is said that the country is adhering to a pegged exchange rate.

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In a pegged exchange rate system, a country's government or central bank fixes its currency's value to another currency, a basket of other currencies, or another measure of value, such as gold. The foreign exchange market's determination of currency value is characteristic of a floating exchange rate system, not a pegged one.

When the Foreign Exchange Market Determines the Relative Value of a Currency,it