Bands Exchange rate is flexible within a present band; endpoints are defended through intervention, typically with some intra-band intervention. An attempt to mix market-determined rates with exchange rate stabilizing intervention in a rule based system. It provides a limited role for exchange rate movements to counteract external shocks and partial expectations anchor, retains exchange rate uncertainty and thus motivates development of exchange rate risk management tools. On the margin a band is subject to speculative attacks. Does not by itself place hard constrains on monetary and fiscal policy, and thus provides only partial solution against the time inconsistency problem. The credibility effect depends on accompanying institutional measures, record of accomplishment and the characteristics of the band (firm or adjustable, secret or public, width, strength of intervention requirement). The spot exchange rate refers to the current exchange rate. The forward exchange rate refers to an exchange rate that is quoted and traded today but for delivery and payment on a specific future date.
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