Exchange Rate Definition

Exchange rate is very significant to the growth of any nation. According to Jilani (2010) in the case of developing countries high value of real exchange rate should be maintained because results show that there is a significant and positive impact of exchange rate with GDP. Gala (2007), and Bhalla (2007) say that real exchange rate of any country plays a very important role in the process of growth. Exchange rate is defined as how much one currency is exchanged in terms of another. The weights are determined by comparing the relative trade balances, in terms of one country's currency, with another country within the index. Exchange rate can also be defined as the price of one country’s currency or money exchanged in terms of other country’s

The Bretton woods principles were based on the following: every nation to adopt a monetary policy that will maintained an exchange rate that ligatures it currency to gold, the IMF ability to channel transitory imbalance of payments, the issue of cordiality among other countries and the avoidance of currency appreciation.

The United States in the early 1970’s unilaterally terminated the convertibility of the US dollars to gold, effectively bringing the Bretton woods system to an end and rendering the dollar a fiat currency. This created a situation in which the United States dollars became a reserve currency used by many states. Many countries at that time turn from fixed exchange rate (such as the pound sterling, for example) to floating exchange

Some economists explained monetary policy to be a process by which the monetary authority of a country controls the supply of money, often targeting a rate of interest for the purpose of promoting economic growth and stability. Other economists consider monetary policy as a measure employed by governments to influence economic activities, specifically by manipulating the supplies of money and credit by altering rates of interest. With these varying views, the major concern of monetary policy is to promote economic growth and price stability with low unemployment (Economic Watch, 2010). The Liberian civil war which started in late 1989 brought massive destruction upon the country. Although there is now relative improvement in the general security, social and economic condition of the country, the economy continues to be plagued by a multiplicity of social and economic problems. The real sector of the economy has generally remained in a state of dormancy since the 1990s with production level of the sector far below the pre-war