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 ?
Twenty years ago, most academics regarded floating exchange rates as another flattener: each country, big or small, could go its own monetary way, provided its domestic policy institutions were sound.
The booklet by Rupa Duttagupta, Gilda Fernandez, and Cem Karacadag concludes with the advice: 'Both fixed and floating exchange rates have distinct and different advantages.
But floating exchange rates have a big drawback: when moving from one equilibrium to another, currencies can overshoot and become highly unstable, especially if large amounts of capital flow in or out of a country, perhaps because of speculation by investors.
Meanwhile, Moody's maintained that higher interest to revenue in the baseline compared with floating exchange rates thrive under exchange rate shocks.
Global Banking News-August 12, 2016--Brazil's central bank backs floating exchange rates
It rose 0.8 percent to $1.3335 following the biggest two-day slide in the post-1973 era of floating exchange rates, which saw it slump to a 31-year low of $1.3122 on Monday.
Some analysts predict that emerging market and developing countries can weather the storm through floating exchange rates, the development of local bond markets, interest rate hikes, or by using some of their foreign exchange reserves.
This changed with the advent of floating exchange rates in the early 1970's, which allowed more stability-conscious countries, such as Germany, to decouple from a US monetary policy that they considered too inflationary.
This changed with the advent of floating exchange rates in the early 1970s, which allowed more stability-conscious countries, such as Germany, to decouple from a US monetary policy that they considered too inflationary.
In the absence of financial frictions, floating exchange rates deliver good stability properties under both productivity and monetary policy shocks.
Analyses include a time-series study of trends in the institutional ownership of financial firms; "rational bubbles" in the Istanbul Stock Exchange between 1998-2006; the Turkish experience as an example of an emerging market conducting policy under floating exchange rates; factors contributing to the globalization of stock markets; and the relative performance of local, foreign, and expatriate financial analysts on emerging Latin American markets.
Countries implementing fixed exchange rates regime had been affected more by economic crisis than countries which implemented floating exchange rates regime, he said.