Influence of Forex Exchange Policy on US Dollar Fluctuation; Comparative Analysis of Pakistan and Bangladesh

Abstract

A country's foreign exchange (forex) policy, which is the cornerstone of its economic structure, encompasses a variety of strategies for controlling the exchange rate of its currency and negotiating the intricacies of the international forex market. The decision between a fixed and floating exchange rate system fundamentally determines the direction of a nation's foreign exchange policy. In a set design, a primary currency or a basket of currencies is used as the basis for the government or central bank's currency peg, which frequently necessitates active interventions to maintain. Although this tactical choice gives the currency's value a perception of stability, it calls for close observation and sporadic market interventions. Conversely, in a floating exchange rate regime, the currency's value is left up to market forces, which consider the fluctuations in supply and demand within the foreign exchange market. Although a floating regime's intrinsic flexibility allows for natural changes, it also increases the currency's volatility. The value of a nation's currency on the international market is determined mainly by its foreign exchange policies. By comparing the situations of Pakistan and Bangladesh, we can understand how disparate foreign exchange policies might affect the values of the two countries' currencies, particularly the US dollar.