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

Floating Exchange Rate - Essay ExampleSince, it is largely babelike on the working of sum and demand, it is said to be self-correcting. The value of the currency pull up stakes depend on the factors that print 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 reduction 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 employ to mean increase in value and decrease in value respectively. However, these terms are all used in the blow deepen rate regime as in the rigid exchange rate they use the terms evaluation and devaluation. We say that it is largely, but not entirely dependent on the workings of the private market through the supply and demand because it is not entirely plain from government intervention. In a floating regime, the central bank may also intervene when it is essential to ensure 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 foreign exchange market