Economic policy and exchange policy
Those actions in the economic field taken by the government are referred to as the economic policies. All the set levels of taxation, interest rates, government budget and money supply are set using the policy. In addition, other levels of national ownership, labor market are dependent on the policy.
The whole branch of economic policy is categorized into two branches. The monetary policy a section that deals with actions concerning the interest rates and money supply and the fiscal policy that is concerned with government spending and taxation.
The policies are influenced by institutions like World Bank, international monetary fund and other beliefs may they be political or social.
The exchange rate policy of any economy affects the overall demand through the way it influences the import and export policies and it is much exploited by policy makers. For instance, exchange rate can be deliberately altered to try and influence the macro-economic environment, this action may be termed as a type of monetary policy.
When the exchange rate changes, it will have an overall effect on the prices of commodity. Therefore, when there is a slight change in the exchange rates, the price of imports and exports is affected.