a floating exchange rate or fluctuating exchange rate is a type of exchange rate regime wherein a...
Post on 05-Apr-2018
212 Views
Preview:
TRANSCRIPT
-
8/2/2019 A Floating Exchange Rate or Fluctuating Exchange Rate is a Type of Exchange Rate Regime Wherein a Currency
1/2
A floating exchange rate or fluctuating exchange rate is a type ofexchange rate regimewherein
acurrency's value is allowed to fluctuate according to theforeign exchange market. A currency
that uses a floating exchange rate is known as afloating currency. It is not possible for a
developing country to maintain the stability in the rate of exchange for its currency in the
exchange market.
me: http://debatepedia.idebate.org/en/index.php/Debate:Coalition_http://www.tss.uoguelph.ca/uid/uidbrief.cf
m
Shloka: haan mrahi thiain bhi wahi dekh
me: ok
Sent at 4:15 PM on Wednesday
me: http://en.wikipedia.org/wiki/Coalition_government
There areeconomistswho 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 ofshocksand foreignbusiness cycles, and to 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 theAsian
currency crisis. The debate of making a choice between fixed and floating exchange rate regimes
is set forth by theMundell-Fleming model, which argues that an economy cannot simultaneously
maintain a fixed exchange rate, free capital movement, and an independent monetary policy. It
can choose any two for control, and leave third to the market forces.
In cases of extreme appreciation or depreciation, acentral bankwill 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.
[edit] Fear of floating
The examples and perspective in this section may not represent aworldwide viewof the
subject. Pleaseimprove this articleand discuss the issue on thetalk page.
A free floating exchange rate increases foreign exchange volatility. There are economists who
think that this could cause serious problems, especially in emerging economies. These economies
have a financial sector with one or more of following conditions:
http://en.wikipedia.org/wiki/Exchange_rate_regimehttp://en.wikipedia.org/wiki/Exchange_rate_regimehttp://en.wikipedia.org/wiki/Exchange_rate_regimehttp://en.wikipedia.org/wiki/Currencyhttp://en.wikipedia.org/wiki/Currencyhttp://en.wikipedia.org/wiki/Currencyhttp://en.wikipedia.org/wiki/Foreign_exchange_markethttp://en.wikipedia.org/wiki/Foreign_exchange_markethttp://en.wikipedia.org/wiki/Foreign_exchange_markethttp://en.wikipedia.org/wiki/Floating_currencyhttp://en.wikipedia.org/wiki/Floating_currencyhttp://en.wikipedia.org/wiki/Floating_currencyhttp://debatepedia.idebate.org/en/index.php/Debate:Coalition_http://debatepedia.idebate.org/en/index.php/Debate:Coalition_http://www.tss.uoguelph.ca/uid/uidbrief.cfmhttp://www.tss.uoguelph.ca/uid/uidbrief.cfmhttp://en.wikipedia.org/wiki/Coalition_governmenthttp://en.wikipedia.org/wiki/Coalition_governmenthttp://en.wikipedia.org/wiki/Economisthttp://en.wikipedia.org/wiki/Economisthttp://en.wikipedia.org/wiki/Economisthttp://en.wikipedia.org/wiki/Shock_(economics)http://en.wikipedia.org/wiki/Shock_(economics)http://en.wikipedia.org/wiki/Shock_(economics)http://en.wikipedia.org/wiki/Business_cycleshttp://en.wikipedia.org/wiki/Business_cycleshttp://en.wikipedia.org/wiki/Business_cycleshttp://en.wikipedia.org/wiki/Asian_currency_crisishttp://en.wikipedia.org/wiki/Asian_currency_crisishttp://en.wikipedia.org/wiki/Asian_currency_crisishttp://en.wikipedia.org/wiki/Asian_currency_crisishttp://en.wikipedia.org/wiki/Mundell-Fleming_modelhttp://en.wikipedia.org/wiki/Mundell-Fleming_modelhttp://en.wikipedia.org/wiki/Mundell-Fleming_modelhttp://en.wikipedia.org/wiki/Central_bankhttp://en.wikipedia.org/wiki/Central_bankhttp://en.wikipedia.org/wiki/Central_bankhttp://en.wikipedia.org/w/index.php?title=Floating_exchange_rate&action=edit§ion=1http://en.wikipedia.org/w/index.php?title=Floating_exchange_rate&action=edit§ion=1http://en.wikipedia.org/wiki/Wikipedia:WikiProject_Countering_systemic_biashttp://en.wikipedia.org/wiki/Wikipedia:WikiProject_Countering_systemic_biashttp://en.wikipedia.org/wiki/Wikipedia:WikiProject_Countering_systemic_biashttp://en.wikipedia.org/w/index.php?title=Floating_exchange_rate&action=edithttp://en.wikipedia.org/w/index.php?title=Floating_exchange_rate&action=edithttp://en.wikipedia.org/w/index.php?title=Floating_exchange_rate&action=edithttp://en.wikipedia.org/wiki/Talk:Floating_exchange_ratehttp://en.wikipedia.org/wiki/Talk:Floating_exchange_ratehttp://en.wikipedia.org/wiki/Talk:Floating_exchange_ratehttp://en.wikipedia.org/wiki/Talk:Floating_exchange_ratehttp://en.wikipedia.org/w/index.php?title=Floating_exchange_rate&action=edithttp://en.wikipedia.org/wiki/Wikipedia:WikiProject_Countering_systemic_biashttp://en.wikipedia.org/w/index.php?title=Floating_exchange_rate&action=edit§ion=1http://en.wikipedia.org/wiki/Central_bankhttp://en.wikipedia.org/wiki/Mundell-Fleming_modelhttp://en.wikipedia.org/wiki/Asian_currency_crisishttp://en.wikipedia.org/wiki/Asian_currency_crisishttp://en.wikipedia.org/wiki/Business_cycleshttp://en.wikipedia.org/wiki/Shock_(economics)http://en.wikipedia.org/wiki/Economisthttp://en.wikipedia.org/wiki/Coalition_governmenthttp://www.tss.uoguelph.ca/uid/uidbrief.cfmhttp://debatepedia.idebate.org/en/index.php/Debate:Coalition_http://debatepedia.idebate.org/en/index.php/Debate:Coalition_http://en.wikipedia.org/wiki/Floating_currencyhttp://en.wikipedia.org/wiki/Foreign_exchange_markethttp://en.wikipedia.org/wiki/Currencyhttp://en.wikipedia.org/wiki/Exchange_rate_regime -
8/2/2019 A Floating Exchange Rate or Fluctuating Exchange Rate is a Type of Exchange Rate Regime Wherein a Currency
2/2
high liability dollarization
financial fragility
strong balance sheet effects
Whenliabilitiesare denominated in foreign currencies while assets are in the local currency,
unexpected depreciations of the exchange rate deteriorate bank and corporate balance sheets andthreaten the stability of the domestic financial system.
For this reason emerging countries appear to face greater fear of floating, as they have much
smaller variations of the nominal exchange rate, yet face bigger shocks and interest rate and
reserve movements.[1]
This is the consequence of frequent free floating countries' reaction to
exchange rate movements withmonetary policyand/or intervention in theforeign exchange
market.
The number of countries that present fear of floating increased significantly during the nineties.[2]
[edit] References
1. ^Calvo, G., and Reinhart, C. (2002). "Fear of Floating." Quarterly Journal of Economics, 117:379-408.
2. ^Levy-Yeyati, E. and F. Sturzenegger (2004). "Classifying Exchange Rate Regimes: Deeds vs.Words." European Economic Review.
Retrieved from "http://en.wikipedia.org/wiki/Floating_exchange_rate"
http://en.wikipedia.org/wiki/Liabilitieshttp://en.wikipedia.org/wiki/Liabilitieshttp://en.wikipedia.org/wiki/Liabilitieshttp://en.wikipedia.org/wiki/Floating_exchange_rate#cite_note-0http://en.wikipedia.org/wiki/Floating_exchange_rate#cite_note-0http://en.wikipedia.org/wiki/Floating_exchange_rate#cite_note-0http://en.wikipedia.org/wiki/Monetary_policyhttp://en.wikipedia.org/wiki/Monetary_policyhttp://en.wikipedia.org/wiki/Monetary_policyhttp://en.wikipedia.org/wiki/Foreign_exchange_markethttp://en.wikipedia.org/wiki/Foreign_exchange_markethttp://en.wikipedia.org/wiki/Foreign_exchange_markethttp://en.wikipedia.org/wiki/Foreign_exchange_markethttp://en.wikipedia.org/wiki/Floating_exchange_rate#cite_note-1http://en.wikipedia.org/wiki/Floating_exchange_rate#cite_note-1http://en.wikipedia.org/wiki/Floating_exchange_rate#cite_note-1http://en.wikipedia.org/w/index.php?title=Floating_exchange_rate&action=edit§ion=2http://en.wikipedia.org/w/index.php?title=Floating_exchange_rate&action=edit§ion=2http://en.wikipedia.org/wiki/Floating_exchange_rate#cite_ref-0http://en.wikipedia.org/wiki/Floating_exchange_rate#cite_ref-0http://en.wikipedia.org/wiki/Floating_exchange_rate#cite_ref-1http://en.wikipedia.org/wiki/Floating_exchange_rate#cite_ref-1http://en.wikipedia.org/wiki/Floating_exchange_ratehttp://en.wikipedia.org/wiki/Floating_exchange_ratehttp://en.wikipedia.org/wiki/Floating_exchange_ratehttp://en.wikipedia.org/wiki/Floating_exchange_ratehttp://en.wikipedia.org/wiki/Floating_exchange_rate#cite_ref-1http://en.wikipedia.org/wiki/Floating_exchange_rate#cite_ref-0http://en.wikipedia.org/w/index.php?title=Floating_exchange_rate&action=edit§ion=2http://en.wikipedia.org/wiki/Floating_exchange_rate#cite_note-1http://en.wikipedia.org/wiki/Foreign_exchange_markethttp://en.wikipedia.org/wiki/Foreign_exchange_markethttp://en.wikipedia.org/wiki/Monetary_policyhttp://en.wikipedia.org/wiki/Floating_exchange_rate#cite_note-0http://en.wikipedia.org/wiki/Liabilities
top related