Floating Exchange Rate
A country's exchange rate regime where its currency is set by the foreign-exchange market through supply and demand for that particular currency relative to other currencies. Thus, floating exchange rates change freely and are determined by trading in the forex market. This is in contrast to a "fixed exchange rate" regime. Investopedia Says:
In some instances, if a currency value moves in any one direction at a rapid and sustained rate, central banks intervene by buying and selling its own currency reserves (i.e. Federal Reserve in the U.S.) in the foreign-exchange market in order to stabilize the local currency. However, central banks are reluctant to intervene, unless absolutely necessary, in a floating regime. Related Terms:
Big Mac PPP
Central Bank
Crawling Peg
Dirty Float
Dual Exchange Rate
Fixed Exchange Rate
Foreign Exchange
Interest Rate Swap
Pegging
Tequila Effect |