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.
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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 ?
Located near the check-in desks, Ramsdens says the new store will "offer passengers and customers alike highstreet value, commission free exchange rates" on currencies.
Being IMF members, Arab countries have also committed to accepting market-driven free exchange rates. However, for monetary or balance of payments reasons, they intervene on the exchange market to avoid too strong fluctuations of currency prices (exchange rates).
Within the free exchange rate system adopted by the International Monetary Fund (IMF) member states.
This implies the elimination of subsidies and government controls, free exchange rates and interest rates, balanced government budgets to control inflation, openness to imports of foreign goods, services and capital, including direct foreign investment and "integration" into the world economy.
Free exchange rates should also be published by the print media.