Economic theory provides a relatively little guidance on the relationship between
exchange rate and trade policies. Trade and exchange rate policies have a common
denominator in that they provide a certain degree of protection or support to domestic
industries. There will always be a change in the level of the exchange rate that will,
increase the return to certain exporting or import-competing activities. At first glance,
one is tempted to argue that stable exchange rates are a precondition for stable trade
policies. However, this need not be the case. One can view the impact of exchange rate
regimes on the stability of trade policy in four ways. The first link concerns the taxonomy
of exchange rate regimes following with sub sections like, currency basket peg, OCA,
and target zone framework. The second link, competitiveness of exchange rate regimes,
has its origin in the direct impact of exchange rate policy on the external sector, BOP,
national price level, and monetary policies more generally. The third link comes from the
relationship of real effective exchange rates and external sector. The study shall turn to
each of these aspects in turn. The fourth link examines the different sides of exchange
rate regimes i.e., determination of exchange rate regimes and new orthodoxy. From the
view point of theoretical aspects of exchange rate regime, First of all theoretical
framework takes up a set of other issues briefly in subsequent sub-sections: the fear of
floating argument, Keynesian analysis of flex, and on the argument the no" size fits for
all" exchange rate regime