Okuzeka
Economics vocabulary · Trade and Exchange Rates

Floating exchange rate

Meaning in economics, with examples

nounCommon term

In economics, floating exchange rate means: An exchange rate system in which the value of a currency is set by supply and demand in the foreign exchange market rather than fixed by the government.

In Turkish: dalgalı kur, dalgalı kur rejimi

How it is used

The opposite is a fixed exchange rate or currency peg. Many systems lie in between, such as a managed float, where the central bank sometimes intervenes. Turkey moved to a floating exchange rate regime in February 2001. A currency floats or is allowed to float.

Example sentences

  1. Under a floating exchange rate, the currency absorbs much of the shock.

  2. The country abandoned its peg and adopted a floating exchange rate.

Common collocations

  • floating exchange rate regime
  • free float
  • managed float
  • allow the currency to float
  • exchange rateThe price of one currency expressed in another, for example how many Turkish lira you need to buy one US dollar or one euro.
  • devaluationAn official decision by a government or central bank to lower the value of its currency under a fixed or pegged exchange rate.
  • appreciationA rise in the value of a currency compared with other currencies, so that it buys more foreign money than before; the opposite of depreciation.
  • depreciationA fall in the value of a currency against other currencies under a floating exchange rate, driven by market forces rather than an official decision.
  • foreign exchange reservesAssets in foreign currencies, such as dollars and euros, held by a central bank to pay for imports, repay foreign debt or support the national currency.

More terms: Trade and Exchange Rates

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This page explains English vocabulary for learners. It is not financial advice.