floating exchange rate


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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.
References in periodicals archive ?
Comparing the Bretton Woods regime with the float, we observe that the aggregate supply schedule became steeper under the floating exchange rate but the aggregate demand schedule became more flat.
The currency dropped by 50% against the dollar after the authorities announced shifting to a floating exchange rate system, which pushed up the cost of imported goods.
In 2018, the Central Bank of Azerbaijan (CBA) will maintain a floating exchange rate, given the ability to effectively absorb foreign shocks, said the bank's message.
Summary: On December 21, 2015, Azerbaijan Central Bank decided to move from the exchange rate peg to a floating exchange rate.
Global Banking News-December 21, 2015--Azerbaijan central bank launches floating exchange rate for manat
China's cabinet will maintain a floating exchange rate system and will realise yuan convertibility on the capital account in an orderly way, the statement also said.
China is implementing the managed floating exchange rate regime based on market demand and supply.
The IMF also said China has the ability to achieve an effectively floating exchange rate system within two or three years.
Specifically, Moody's says that QE tapering is most likely to have a negative impact on countries that lack buffers such as hard currency reserves or policy tools such as a floating exchange rate.
Moody's warns that although the currency bears the brunt when there are BoP shock thanks to the floating exchange rate regime, domestic economic activity gets hit as well.
New Zealand's debt is mostly in New Zealand dollars, and it has a freely floating exchange rate.