Content:

 Meaning of flexible exchange rate

 Definition of flexible exchange rate
 Advantages of flexible exchange rate
 Disadvantages of flexible exchange rate
MEANING
A floating exchange rate is a regime where the
currency price is set by the forex market based on
supply and demand compared with other
currencies. This is in contract to a fixed exchange
rate, in which the government entirely or
predominantly determines the rate.
DEFINITION
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
ADVANTAGES
1. Independent monetary policy
2. Shock absorber
3. Promotes economic development
4. Solution to balance of payment problems
5. Promote international trade
6. Increase in international liquidity
7. Market force at work
8. International trade not promoted by fixed rates
9. International investment not promoted by fixed rate
10. Fixed rate not necessary for currency area
11. Speculation not prevented by fixed rates
DISADVANTAGES
1. Low elasticity’s
2. Unstable condition
3. Adverse effect on economic structure
4. Unnecessary capital movement
5. Depression effect of capital movement
6. Inflationary effect
7. Factors immobility
8. Failure of flexible rate system