Describe the meaning of 'pegging of currency'. Highlight the intermediate arrangements for determining exchange values of foreign currency.

Pegging of currency refers to a method of stabilizing a country's currency by fixing its exchange rate to that of another country. Different countries follow different methods for pegging of their currencies. The foreign exchange value is established according to the practice being followed by a country. If the country follows a fixed rate of parity between its currency and a foreign currency, then the changes in parity value of that currency shall determine changes in the value of domestic currency vis-a-vis other foreign currencies. Thus, in that situation, performance of the domestic economy is not reflected in the valuation of its currency. This is one extreme side of absolute rigidity in fixation of exchange rate. The other extreme is allowing the exchange value of the national currency to float independently according to market forces without any intervention from the Central Bank. In between these two extremes, there are many intermediate arrangements for determination of exchange values. These arrangements are being listed below: Domestic currency pegged to one foreign currency A currency pegged to a basket of currencies Flexibility limited in terms of a single currency Pegged to some indicators Managed Float Independent float