The major types of monetary polices are fixed exchange rate, floating exchange rate and inflation targeting. In their effort to address inflation and deflation, central banks emulate various monetary policy tools. These include monetary base, reserve requirements, discount lending rates, exchange requirements, margin requirement, regulation of consumer credit and moral suasion. Being the regulator of exchange market, central bank has vital responsibility of determining the exchange rates. However, market forces can significantly influence the interest rates. In order to arrive at an appropriate exchange rate, central bank considers various factors that include inflation rate differences, deficits in current account as well as differences in interest rate. By adopting various monetary policies, developed country can influence the policies emulated by other countries.