Revision: Floating Exchange Rates

Since 1992 the UK has operated with a floating exchange rate – the external value of the currency has been left to market forces i.e. the supply and demand for sterling in the global foreign exchange markets. In a pure floating system, there is official target for the exchange rate and there is no need for intervention in the currency market by the central bank. The two page revision noteis available below

Countries have always faced constraints in choosing their exchange rate regime.

Any country can have only two out of the following three:

1. An independent monetary policy (freedom to set interest rates)

2. A fixed exchange rate (currency stability and predictability)

3. An open capital account (freedom to finance a current account deficit)

As international financial markets have developed, there has been a general movement to flexible exchange rates supported by credible domestic monetary policies. That is a sensible use of the price mechanism to respond to complex and unpredictable shocks.

The floating exchange rate system has suited the UK well – we are an open economy with a large current account deficit and need the flexibility that a market determined currency provides

Revision note on floating exchange rates
Revision_Floating_Exchange_Rates.pdf

Unit 2 Macro: Model answer for revision data question [9 May 2012]
Unit 2 Macro: Exchange Rates Glossary [5 May 2012]
Unit 2 Macro: The UK Balance of Payments in 2011 [4 Apr 2012]
Unit 2 Macro: Revision on Interest Rates and the Exchange Rate [3 Apr 2012]
Unit 4 Macro: Floating and Managed Floating Exchange Rates [2 Apr 2012]
Posen on slower growth in the UK compared to the USA [30 Mar 2012]
Unit 4 Macro: Evaluating 3 Years of Quantitative Easing [27 Mar 2012]
Unit 2 Macro: Might Oil Prices Bring another Recession? [4 Mar 2012]
AS and A2 Macro: Exchange Rates and “Safe Haven” Currencies [2 Oct 2011]
AQA Macro: Remember to revise inflation [25 May 2011]
Interest Rates Held at 0.5% once again [5 May 2011]
AS Macro Key Term: Expansionary Monetary Policy [4 Apr 2011]
OCR F585 June 2011: Data Charts [30 Mar 2011]
Pacific Peso Reaches 29 Year High! [30 Mar 2011]
Timetric: Currency movements against the Euro [16 Mar 2011]
EU Economics: How far is the Eurozone away from being an OCA? [12 Mar 2011]
AS Macro: What next for the pound? [14 Feb 2011]
Economics Q&A: Will the rise in VAT harm the UK’s economic performance? [17 Jan 2011]
Economics Q&A: Will the Government spending cuts affect inflation? [3 Jan 2011]
Economics Q&A: Why might Europe’s weaker economies struggle to grow in the next few years? [2 Jan 2011]
EU Economics: EU Economy in Charts Jan 2011 [29 Dec 2010]
Reasons to fear a jobless recovery [11 Aug 2010]
A selection of revision notes on monetary policy [4 Jun 2010]
A selection of revision notes on the balance of payments [1 Jun 2010]
AS Macro Revision: Cost Push Inflation [31 May 2010]
Euro Land and Optimal Currency Areas - A Valentine’s Day Massacre [29 May 2010]
Sterling and the Economic Recovery [29 May 2010]
Sterling and Exports - The Importance of Time Lags [29 May 2010]
AS Macro: Sterling and the UK Economy [29 May 2010]
AS Economics Revision - Oil and Petrol Prices [22 May 2010]
Business profits and the recession [1 May 2010]
Issues and Prospects for the UK Economy in 2010 [25 Apr 2010]
Stephen King on connections between monetary and fiscal policy [7 Apr 2010]
UK Economy Revision: Inflation in the last few years [1 Apr 2010]
Kaletsky on the benefits of a weak pound [8 Mar 2010]
Currency Market Updates - Lesson Resource Download [4 Mar 2010]
Slumpflation? UK inflation jumps to 3.5% [16 Feb 2010]
Evolution of an Economic Recovery [13 Feb 2010]
Is UK manufacturing turning a corner? [4 Jan 2010]
Is monetary policy becoming less effective? [16 Dec 2009]
Inflation targets [15 Dec 2009]
The power of words… [12 Nov 2009]
Size of UK GDP overtaken by Italy [24 Oct 2009]
Let a falling pound rebalance the economy [28 Sep 2009]
Cause and effect of the weakness of sterling [27 Sep 2009]
Sunday Selection [13 Sep 2009]
Recession and cheaper pound help to cut UK trade deficit [12 Jul 2009]
Europe Revision: The Euro [4 Jun 2009]
Revision blogs on currencies [2 Jun 2009]
Cable Strengthens [19 May 2009]
Revision: Demand-side shocks [4 May 2009]
After the storm [3 May 2009]
Revision: Aggregate Demand [3 May 2009]
(Very) Tentative Green Shoots [13 Apr 2009]
Q&A: What is a reserve currency? [29 Mar 2009]
Imbalances and the Economic Crisis [15 Mar 2009]
Macroeconomics Seminar with David Miles [27 Feb 2009]
Risk of investor flight from the UK [13 Feb 2009]
February 2009 – UK policy rates cut to historic low of 1% [5 Feb 2009]
Exchange Rates - Student Handout [1 Feb 2009]
Black Wednesday Videos [27 Jan 2009]
The Temptation of Competitive Devaluations [25 Jan 2009]
Interest rates are no longer the key story [8 Jan 2009]
Will sterling’s slide spook investors? [21 Dec 2008]
Beta Currencies and PMD [19 Dec 2008]
Devaluation and salvation? [16 Dec 2008]
Ex-Pats and Students feel the pinch of sterling’s fall [13 Dec 2008]
A turning point for price expectations [11 Dec 2008]
Euro parity for the pound? [11 Dec 2008]
Do we need a fiscal stimulus? [23 Nov 2008]
Why is the pound falling in value and does it matter? [23 Oct 2008]
Latte Lesson (1) [10 Oct 2008]
The Rate Cut - In Charts [8 Oct 2008]
Is the Bank bonkers not to cut rates? [5 Oct 2008]
Rock fall was symptom of wider malaise [13 Sep 2008]
The falling pound - a bitter sweet development [31 Aug 2008]
UK economy at recession’s door [22 Aug 2008]
Sterling takes a pounding [16 Aug 2008]
IMF health check on the UK economy [7 Aug 2008]
Better off out than in? [29 May 2008]
Central bank impotence [18 May 2008]
Mervyn faces the Music [14 May 2008]
The Monetary Stimulus [9 May 2008]
Better off out than in? [9 May 2008]
Does a current account deficit matter? [7 May 2008]
Cheaper sterling to the rescue? [18 Apr 2008]
Chart of the Day: Imported Inflation into the UK [11 Apr 2008]
Interest rates, exchange rates and annual holidays [10 Apr 2008]
Currencies hit the Headlines [10 Apr 2008]
Revision: The Pound Falls to 5 Year Low against the Euro [27 Mar 2008]
A Tale of Two Trade Deficits [14 Feb 2008]

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