Floating Exchange Rate Essay Example | Topics and Well Written Essays - 1250 words

Floating Exchange Rate - Essay ExampleSince, it is largely dependent on the working of translate and demand, it is said to be self-correcting. The value of the capital pass on depend on the factors that affect the supply and demand, similar to a simple commodity. If the demand for the currency is high, its value (which is reflective of its a price) will increase. On the other hand, a low demand for the currency in the world market, perhaps brought by a decline in the demand for the domestic products, will cause a depreciation of the currency. Examining the supply side, an increase in the supply of the currency will cause its depreciation while a decline in supply will work the other way. The terms appreciation and depreciation are used to mean increase in value and decrease in value respectively. However, these terms are only used in the floating exchange footstep regime as in the fixed exchange rate they use the terms evaluation and devaluation. We say that it is largely, but no t entirely dependent on the workings of the private market through the supply and demand because it is not entirely free from government intervention. In a floating regime, the central assert may also intervene when it is necessary to vouch stability and to avoid inflation, although this is much less often than in a fixed exchange rate regime (Investopedia).One way for the central bank to intervene in a floating exchange rate regime is through buying and selling of its own currency reserves in the unconnected exchange market