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Floating Exchange Rate
(redirected from Freely Floating Exchange Rate)

    Also found in: Wikipedia 0.01 sec.
Floating exchange rate
A country's decision to allow its currency value to change freely. The currency is not constrained by central bank intervention and does not have to maintain its relationship with another currency in a narrow band. The currency value is determined by trading in the foreign exchange market.
Floating Exchange Rate
The exchange rate in which the value of the currency is determined by the free market. That is, a currency has a floating exchange rate when its value changes constantly depending on the supply and demand for that currency, as well as the amount of the currency held in foreign reserves. An advantage to a floating exchange rate is that it tends to be more economically efficient. However, floating exchange rates tend to be more volatile depending on the particular currency. A currency with a floating exchange rate may undergo currency appreciation or currency depreciation, depending on market fluctuations. A floating exchange rate is also called a flexible exchange rate. See also: Fixed exchange rate, Crawling peg, Managed float.
floating exchange rate
An exchange rate between two currencies that is allowed to fluctuate with the market forces of supply and demand. Floating exchange rates tend to result in uncertainty as to the future rate at which currencies will exchange. This uncertainty is responsible for the increased popularity of forward, futures, and option contracts on foreign currencies. Also called flexible exchange rate. Compare fixed exchange rate.
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Countries that are fully integrated into the global financial system and have freely floating exchange rates are likely to suffer the most, while countries such as India and China that follow managed exchange rates and have government bonds priced in domestic currencies are better protected, as currency risk acts as a deterrent.
The many perils of self-destruction by Gulf News (United Arab Emirates)
To make an informed choice, policy makers need some insight in how much monetary policy discretion is sacrificed by the move from freely floating exchange rates to a target zone and by the move from a target zone to a full monetary union.
Inside the impossible triangle: monetary policy autonomy in a ... by Jansen, W. Jos / Contemporary Economic Policy
The essential point is that freely floating exchange rates clear foreign exchange markets without central planning.
China's defense of the peg perpetuates central planning by DeRosa, David F. / The Cato Journal
 
 
 
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