In a flexible exchange rate system, the central banks allow the exchange rate to adjust to equate the supply and demand for foreign currency. The terms flexible and floating rates are used interchangeably.
In a system of Clean Floating Rate, Central Banks stand aside completely and allow exchange rates to be freely determined in the foreign exchange markets.
Under a Managed or a Dirty floating rate, Central banks intervene to buy and sell foreign currencies in attempts to influence exchange rates.
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