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 ?
Finally, achieving the NBGs main objective of price stability requires a floating exchange rate.
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.
Elvira Nabiullina, head of the apex bank, defended the country's floating exchange rate.
Economic Growth was supported by macroeconomic policies, focused on achieving a primary fiscal surplus and strict inflation targets, and a floating exchange rate regime, which contributed to consolidate macroeconomic stability.
China is implementing the managed floating exchange rate regime based on market demand and supply.
For it to do that, it needs a floating exchange rate, and it needs to internationalize.
The head of the bank approved the policy of the National Bank on gradual transition to inflation targeting and a floating exchange rate.
S&P anticipates that the central bank will maintain its floating exchange rate regime while intervening on the margin to smooth the effects of large FDI inflows.
The uncertainties regarding the future Fed and ECB monetary policy are having a similar effect on the currencies of other countries in the region which also run a floating exchange rate regime.
These policy interventions can also be found in countries, which adopt floating exchange rate regimes (Calvo and Reinhart, 2002).
The Bank of Sudan (BoS) governor suggested that a move to a floating exchange rate may be forthcoming.
Our country is being affected by developments in USD since it is implementing floating exchange rate regime, however there is nothing to panic and there is not any situation that can put Turkey into trouble," Caglayan told reporters in Istanbul.