What is flexible exchange rate in economics?

Flexible exchange rates can be defined as exchange rates determined by global supply and demand of currency. In other words, they are prices of foreign exchange determined by the market, that can rapidly change due to supply and demand, and are not pegged nor controlled by central banks.

Which countries have flexible exchange rates?

Free floating

  • Australia (AUD)
  • Canada (CAD)
  • Chile (CLP)
  • Japan (JPY)
  • Mexico (MXN)
  • Norway (NOK)
  • Poland (PLN)
  • Sweden (SEK)

Who fixed the flexible exchange rate?

Difference between Fixed and Flexible Exchange Rate

Fixed Rate Flexible Exchange Rate
Involvement of Government Bank
Government bank determines the rate of exchange No such involvement of government bank
Need for maintaining foreign reserve
Foreign reserves need to be maintained No need for maintaining foreign reserve

What are the advantages of flexible exchange rate?


  • (i) Automatic Adjustment in BOP:
  • (ii) No Collusion Between Internal-External Objectives:
  • (iii) Absorption of Sudden Shocks:
  • (iv) Minimum Buffer of Foreign Exchange Reserves:
  • (i) Uncertainty and Confusion:
  • (ii) Hampering Investment:
  • (iii) Risk, Instability, and Speculation:
  • (iv) Inflationary in Character:

How is flexible exchange rate determined?

Under flexible exchange rate regime, the rate of exchange is determined by the forces of demand and supply. In other words, the equilibrium rate of exchange occurs where demand and supply are equal to each other. Hence, the equilibrium exchange rate (OR) is determined by demand and supply of foreign currency.

Which country is the most flexible?

Denmark, Switzerland, the United States, Finland and the Czech Republic present the highest degree of flexibility at the level of local labour markets (or “travel to work” areas), followed by Austria, New Zealand and Poland.

Who economist supported flexible exchange rate?

This world of flexible exchange rates and perfect capital mobility is often called the Mundell–Fleming model of the open economy. (Robert Mundell, Nobel Laureate in Economics in 1999, and Marcus Fleming were two early researchers who developed models along the lines of those presented here.)

Who sets fixed exchange rate?

A fixed or pegged rate is determined by the government through its central bank. The rate is set against another major world currency (such as the U.S. dollar, euro, or yen). To maintain its exchange rate, the government will buy and sell its own currency against the currency to which it is pegged.

What are the benefits of a flexible Organisation?

You should also be brave enough to do away with policies that do not work, because there are advantages that come with promoting flexibility in your organization.

  • Enhanced Competitiveness.
  • Improved Efficiency.
  • Your Scheduling Becomes More Flexible.
  • Better Team Building.
  • Your Organization Will Grow Faster.

What are the advantages and disadvantages of a flexible workforce?

Advantages and disadvantages of flexible working

  • Flexible working often means working from home.
  • Blurring the home / work balance.
  • Procrastination.
  • Communication difficulties.
  • Flexible working requests can cause employee isolation.
  • Reduced benefits.
  • Possible lack of career progression.
  • Being sidelined.

How does a flexible exchange rate differ from a managed exchange rate?

A managed exchange rate involves government​ intervention, while a flexible exchange rate does not. A fixed exchange rate is set at a​ long-run value determined by the​ government, while a managed exchange rate can vary day to day depending on government actions. You just studied 19 terms!

Which one is a merit of flexible exchange rate?

A great merit of flexible exchange rates is that it frees the Government from problems of balance of payments. As has been seen above, the fixed exchange rates system leads either to deficit or surplus in balance of payments.

What is a flexible exchange rate?

Flexible Exchange Rate 1 A flexible exchange rate is also known as a floating exchange rate. 2 In a flexible exchange rate, a rate is set according to the demand and supply of market forces. 3 A country’s economic situation will determine the market demand and supply of its currency.

What are the different types of exchange rate?

There are two types of exchange rate a fixed exchange rate and flexible exchange rate. The fixed exchange rate is officially fixed by the government or a competent authority, not by the market forces.

Can a government adopt independent monetary policy under flexible exchange rate?

But, under flexible exchange rate system, a government can adopt independent monetary policy. In other words, under this system of exchange rate, internal balance could be maintained by the government.

What are the merits and demerits of freely fluctuating exchange rate?

The chief merit of the freely fluctuating exchange rate is that the BOP disequilibrium gets corrected automatically with the change in exchange rate. If a BOP deficit arises, there would be an excess supply of home currency leading to a fall in exchange rate simply by the market forces of demand and supply.