FOLLOWING NEWS

RANGE TRADING

TREND TRADING

SCALPING

COMMODITY FUTURES

LEVERAGE

CURRENCY BAND

EXCHANGE RATES

FLOATING EXCHANGE RATE

FIXED EXCHANGE RATE

LINKED EXCHANGE RATE

CURRENCY SWAP

LIQUIDITY

MARKET SPECULATORS

FLOATING EXCHANGE RATE


A floating exchange rate or a flexible exchange rate is a type of exchange rate regime wherein a currency's value is allowed to fluctuate according to the foreign exchange market. A currency that uses a floating exchange rate is known as a floating currency. The opposite of a floating exchange rate is a fixed exchange rate. There are economists who think that, in most circumstances, floating exchange rates are preferable to fixed exchange rates. As floating exchange rates automatically adjust, they enable a country to: dampen the impact of shocks & foreign business cycles; and preempt the possibility of having a balance of payments crisis. However, in certain situations, fixed exchange rates may be preferable for their greater stability and certainty. This may not necessarily be true, considering the results of countries that attempt to keep the prices of their currency "strong" or "high" relative to others, such as the UK or the Southeast Asia countries before the Asian currency crisis. In cases of extreme appreciation or depreciation, a central bank will normally intervene to stabilize the currency. Thus, the exchange rate regimes of floating currencies may more technically be known as a managed float. A central bank might, for instance, allow a currency price to float freely between an upper and lower bound, a price "ceiling" and "floor". Management by the central bank may take the form of buying or selling large lots in order to provide price support or resistance, or, in the case of some national currencies, there may be legal penalties for trading outside these bounds.

Start trading