floating exchange rate

(redirected from Freely Floating Exchange Rate)

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 ?
The central bank has a freely floating exchange rate system and that the depreciation is largely driven by fundamentals.
The BSP official noted that the central bank continued to adhere to a freely floating exchange rate system.
At this stage it remains unclear if the central bank is moving towards a more freely floating exchange rate, however we expect the currency to remain heavily managed throughout 2015."
The financial rand, on the other hand, was a more freely floating exchange rate, and was mainly applied to non-residents' financial transactions, including foreign direct investment (FDI), the repatriation of capital and profits, and outward capital transfers by residents and emigrants.
The underlying issue is straightforward: the Canadian currency area is too small and too open for a freely floating exchange rate to accommodate both a world-class manufacturing sector and a global energy superpower.
(23) The exchange rate reform objective of the PBC is to ultimately achieve a freely floating exchange rate regime through a sequential approach to achieving more flexibility of RMB movement in response to market demand-supply relations.
In December 1997, the government introduced a range of reforms, including the establishment of a new Financial Supervisory Commission, implementing a freely floating exchange rate and abolishing interest rate ceilings.
He added that as a freely floating exchange rate system, the depreciation of the peso in the past two years is "largely and in the long run" driven by fundamentals which they continue to see.
Finally the BSP official noted that the central bank continues to adhere to a freely floating exchange rate system.
New Zealand's debt is mostly in New Zealand dollars, and it has a freely floating exchange rate.
He reiterated that the BSP still supports a freely floating exchange rate system or a market-determined exchange rate but they can intervene to temper sharp fluctuations.
New Zealand formally introduced inflation targeting in 1989, and has had a freely floating exchange rate since 1985.