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How Floating Exchange Rate Influences the Currency Market?

  • September 2014
  • Posted By Ninoslav

Do you have any idea about Floating Exchange Rate? The value of currencies always fluctuates. Thus, a currency pair has a great effect and you need an exact time to pick up for a good profit.

What is a Floating exchange rate?
A Floating Exchange Rate is a kind of exchange rate regime in which currency value depends on the currency market. Different currency values fluctuate. Maximum currencies are floating currencies, which is just opposite of fixed currencies settle by local government.

The Bretton wood system was applicable till the year 1970 and thus after that it was decided by all experts that the value of currency was no longer fixed. Thus, floating market started to effect and only by leaving some gulf countries more than 80 % countries follow floating rate. Some of them are US Dollars, Yen, Swiss Franc, Australian Dollar and many other currencies.

How the currencies get affected?
A currency market determines the value of a currency on the basis of supply and demand. As you get for any product when demand increases its value increases and when its demand decreases its value decreases. The value of different currencies follows the same strategy.

Is there any fear in floating market?
Sometimes economists think that too much fluctuation causes problems in currency market in some situation like high liability in dollarization, strong balance sheet effects and financial fragility. But, sometimes it is needed to fluctuate as fluctuation determines the values of currency everyday which is good for investors. Every currency gets some fluctuation and gets set up by its own.

Hence, you need to know about Floating Exchange Rate for a currency pair you are looking for. You will also know about “How Fixed Exchange Rate is important for a country?


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