Managed Exchange Rates

Managed Exchange Rates

Market forces are the main determinant of floating exchange rates, but there are times when the central bank try to influence the market rates. They can do it by adjusting interest rates or by intervening directly F.E market.

If central bank does not intervene in the market it is known as clean floating. If central bank does intervene it is described as dirty floating. Govt. attempts to “manage” the exchange rate in order to smooth out fluctuations equilibrium rate of exchange.