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.
Copyright © 2012, Campbell R. Harvey. All Rights Reserved.

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.
Farlex Financial Dictionary. © 2012 Farlex, Inc. All Rights Reserved

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.
Wall Street Words: An A to Z Guide to Investment Terms for Today's Investor by David L. Scott. Copyright © 2003 by Houghton Mifflin Company. Published by Houghton Mifflin Company. All rights reserved. All rights reserved.
References in periodicals archive ?
Once you have a good base you may want to consider charging globally for services in dollars, but beware of the fluctuating exchange rate.
The fluctuating exchange rate is therefore, something that OFWs and OCWs should treat with urgency when investing in real estate.
The Foreign Ministry said the purpose was to protect Shiite pilgrims from the fluctuating exchange rate of the dollar.
She added that the sectors could maintain their financial position for most of the time despite the slowdown in the market or the fluctuating exchange rate.
The foreign capital market posed new challenges to the banks' overseas strategies, especially the fluctuating exchange rate, which affected the liquidity of yuan.
The devaluation of rupee he said against dollar and the constantly fluctuating exchange rate has raised Pakistan's external debt by Rs.
The business community considers that a fluctuating exchange rate would create more money for investments and the economy would liven up.
Not to be forgotten, "The Lion King" in Vancouver, B.C., eclipsed its own mark, though the fluctuating exchange rate left it $176 shy of last week's gross in U.S.
Chang pointed out that the greenback will continue to weaken in the coming years, leading to fluctuating exchange rate of the NT dollar and erosion of exporters?
He's not too concerned about the fluctuating exchange rate, even though it meant he had to back out of a deal with a US supplier to buy a piece of kit worth almost pounds 100,000.
The author makes the case for an independent monetary policy--implying a fluctuating exchange rate vis-a-vis the euro--between the present and the time of entry into the ERM II.