floating exchange rate

(redirected from Flexible Exchange Rates)

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 ?
This foundation was implicit in Milton Friedman's (1953) case for flexible exchange rates, which held that "the logical domestic counterpart of flexible exchange rates is a strict fiduciary currency changed in quantity in accordance with rules designed to promote domestic stability.
The Optimal Currency Areas (OCA) theory pioneered by Mundell (The American Economic Review, 1961) arose in the early sixties of the last century as an extension of the literature on the choice between fixed or flexible exchange rates.
Economists like flexible exchange rates because they allow financial markets -- rather than governments -- to set the prices of currencies.
It made passing reference to the need for flexible exchange rates, pledging to "stick to our previous exchange rate commitments".
It may seem that fixed versus flexible exchange rates dilemma in the period of increased global uncertainty and negative trends in the global economy became alive again while discussions on policy issues, challenges and controversies may find it difficult to provide clear suggestions.
uCaA change in export prices has a greater impact on the debt-to-GDP ratio of countries with flexible exchange rates than it does on those with fixed exchange rates.
Are flexible exchange rates bad for controlling inflation?
Two options are available: fixed or flexible exchange rates.
All of the countries that Edwards studies--Brazil, Chile, Colombia, Mexico, Indonesia, Korea, and the Philippines--had flexible exchange rates during the period he analyzes, and they followed some kind of inflation targeting.
Proponents of flexible exchange rates have argued that fixed exchange rates encourage speculative capital inflow, moral hazard and over investment, while proponents of fixed exchange rates have stressed the positive impact of exchange rate stability on the economic performance of many countries mainly the East Asian economies.
Flexible exchange rates for a stable world economy.
The Manila-based lender warned some developing economies were showing signs of "potential overheating" and said more flexible exchange rates and capital controls could help curb soaring consumer costs and ease pressure on the poor.

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