What is a Floating Exchange Rate?

What is a Floating Exchange Rate?


Welcome to the Investors Trading Academy talking
glossary of financial terms and events. Our word of the day is FLOATING EXCHANGE RATE.
It is the currency exchange rate without the influence of the government, but the natural
performance of the market. Some countries with floating exchange rates include the US,
Canada, England, and the Eurozone. China on the other hand, does not have a floating exchange
rate, but is instead pegged to a basket of currencies.
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.
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.

3 Comments

  • Harez H

    November 10, 2015

    omg this was very helpful. i'm going to be rich from trading forex!!! bring em them benjamins!

    Reply
  • Leighton Julye

    June 28, 2017

    A floating exchange rate or fluctuating exchange or flexible exchange rate is a type of exchange-rate regime in which a currency's value is allowed to fluctuate in response to foreign-exchange market mechanisms. A currency that uses a floating exchange rate is known as a floating currency.

    Reply
  • Vanessa Abarca

    May 14, 2018

    great information, but try to explain a little slower next time

    Reply

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