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 ?
Global Banking News-August 12, 2016--Brazil's central bank backs floating exchange rates
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.
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.
Because of various transaction costs, floating exchange rates, and barriers such as tariffs, a metric known as the "purchasing power parity exchange rate" is applied to put purchasing power for different countries on an even footing.
The quite limited role of foreign currency reserves in New Zealand, as in many advanced economies with freely floating exchange rates, is consistent with the monetary policy framework and open financial account.
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.
I simulate the calibrated economy under monetary and productivity shocks, and I compare three different exchange rate regimes--that is, hard pegs, managed exchange rates, and floating exchange rates.
Countries implementing fixed exchange rates regime had been affected more by economic crisis than countries which implemented floating exchange rates regime, he said.
With respect to dynamic equilibria under floating exchange rates, there is a nontrivial scope for complex eigenvalues that contributes to both cyclical and non-cyclical fluctuations; in some cases, the fluctuations can be significantly large and explosive.
Following the widespread acceptance of floating exchange rates in the mid-1970s, the IMF redefined the SDR as weighted average of the U.
Since the collapse of Bretton Woods in 1971, the global economy has tried to function with floating exchange rates, in which the ''market'' is said to set currency prices.