What is the difference between floating and fixed exchange rates?

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i’ve looked on websites but they’re making them sound a lot more difficult so i’m not really understanding :(. got an exam on tuesday too! 🙁

TA X

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? Best Answer

  • Fixed Exchange rate was the exchange rate which was fixed by the order of the Government.Ex-Gold Standard where gold was the unit of parity.Whereas,
    Floating Exchange Rate is the exchange rate which is determined by the demand and supply of foreign exchange.Ex-Current Exchange rate.

  • Fixed- Usually tied to the value of something e.g Gold standard. Supply of money limited to stop high inflation. Whenever inflation gets past a point the monetary committee (e.g bank of england, federal reserve will alter the money supply to stop it getting out of hand.

    Floating- Backed by nothing e.g. modern money. It’s why you see on the news currency prices change so often. To buy goods in another country, you have to pay in their currency usually, and to do that you have to exchange.

    The more of that currency demanded, the higher its value will be relative to other currencies

    Source(s):
    http://www.bized.co.uk/learn/economics/index.htm this website was always good for my a-level economics.

  • A floating exchange rate means the value of the currency is determined by the supply and demand for the currency as it is traded between different countries both speculatively (forex trading) and also when you buy foreign goods.

    A fixed exchange rate is when the value of the currency cannot fluctuate since it is tied to the value of another currency or sometimes to the price of gold

    Source(s):
    A level economics

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