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.
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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 ?
HEC Chairman Banuri added that the commission is aware of the financial difficulties that public universities are facing because of the government's decision to give pay raises to government employees as well as the fluctuating exchange rates.'We are talking with the government for supplementary grants while also negotiating with the education minister, the finance minister and the financial adviser,' he explained.
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Our research indicates that while both of those are happening to some level, not all foreign buyers have reacted in the same way to fluctuating exchange rates. Pakistanis and Indian nationals account for a large portion of the foreign buyers and have responded similarly to a strong US dollar.
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These policies have already created havoc in terms of making foreign capital flowsmore volatile and causing rapidly fluctuating exchange rates. Korea and other Asian countries saw considerable capital inflows into their economies after 2008 since they were offering higher interest rates than those in the West.
The BCT said the latest developments recorded in the value of the dinar reflect the reality of supply and demand on the foreign exchange market which is followed by the BCT, to intervene to regulate the market if necessary to fight against fluctuating exchange rates.