Would Thailand have been better off using a flexible exchange rate instead of a fixed rate? An exchange rate is the rate at which one currency can be exchanged for another. In other words, it is the value of another country’s currency compared to that of your own. If you are travelling to another country, you need to “buy” the local currency and just like the price of any asset; the exchange rate is the price at which you can buy that currency. Countries can operate either a flexible or fixed exchange rate and in more economically developed countries the exchange rate is usually flexible and it is the market that determines the rate and which is also related to how strong the economy of the country is. However, some countries operate fixed exchange rates to create a stable atmosphere for foreign investors. With the currency pegged investors know what the value of the investment is and don’t have to worry about daily fluctuations. A pegged currency can also help to lower inflation rates and generate demand which results from greater confidence in the stability of the currency