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 ?
The existence of a free exchange rate and freedom in transferring funds also contribute greatly.
The free exchange rate formation mechanism allowed us to keep up with the fluctuations in the currency of Russia, our main trading partner.
In line with that 'conventional wisdom', the Central Bank completed the liberalisation of the capital account in April 2001, restating its commitment to a fully free exchange rate.
Switzerland is convinced that the free exchange rate of euro against Swiss franc will help the SNB get rid of a burden of commitment that the country has afforded during and after the global economic crisis, he noted.
One economist told Reuters, "If the government rate becomes 17,000 rials to the dollar, the free exchange rate will become 26,000.
Turkey adopted free exchange rate regime and free capital movements.
Within the free exchange rate system adopted by the International Monetary Fund (IMF) member states.
Maybe, as pointed out earlier, a chapter based on relevant questions explaining why the Nepali rupee has of late been continuously devalued against the American dollar or what could possibly be the consequences for Nepal should the peg with the Indian currency be removed or for that matter would Nepal be better off with alternative modalities like a free exchange rate system etc.
The response of the banking sector to the free exchange rate system has been cautious.
In the immediate aftermath of the plan, the dollar and gold both fell with the creation of a single free exchange rate.
Servicing of corporate debt would have to be done at the free exchange rate, which could be very expensive for companies.
In theory, Pakistan is practising a free exchange rate regime, but keeping in view the sensitive role that exchange rates play in an economy like ours, the central bank keeps the rupee in a certain rate-band to avoid volatility beyond control.