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Preferred term

floating exchange rate  

Definition

  • Floating exchange rate is the price of a nation's currency in terms of the price of the currency of another nation that is determined by the foreign exchange market based on the demand and supply of the currencies. For example, if the equilibrium level of US$1 is at ¥107 on a particular day, the exchange rate between U.S. dollars and Japanese yen is said to be ¥107/US$. When demand for yen increases, the value of yen appreciates and the floating exchange rate reaches ¥105/US$. In order for the floating exchange rate to work, currency systems in both the United States and Japan need to be in the floating exchange rate zone. [Source: Encyclopedia of Business in Today's World; Floating Exchange Rate]

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https://concepts.sagepub.com/social-science/concept/floating_exchange_rate

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