Inflation and its effects on exchange rates can also be ascertained from the following facts. In earlier days, it was suggested by a majority of the economists to peg a particular currency or to dollarize currency of a country. Nations (emerging countries) were used to having a fixed type of exchange rate. Every effort was made to keep the exchange rate fixed because a floating exchange rate was feared to cause inconvenience in trading. With the advent of the concept of “inflation targeting” and exchange rates, which are flexible, the scenario has changed. More and more countries are moving away from the fixed exchange rates. This transition is taking place, when most of the nations are adopting inflation targeting as a means of conducting various monetary policies. In many countries, the nominal exchange rate was used as a means to bring down inflation.