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Key Diagrams - Managed Floating Exchange Rates

A-Level, IB
AQA, Edexcel, OCR, IB, Eduqas, WJEC

Last updated 30 May 2022

In this revision video we look at how supply and demand diagrams can be used to analyse a managed floating currency.

Key Diagrams - Managed Floating Exchange Rates

A managed floating exchange rate is an exchange rate system that allows a nation's central bank to intervene regularly in foreign exchange markets to change the direction of the currency's float and/or reduce the amount of currency volatility.

This exchange rate system is also known as a “dirty float”.

IMF Survey of Currency Systems (2021)

Countries with a managed-floating exchange rate:

  • Brazil
  • South Korea
  • Chile
  • South Africa
  • Turkey
  • New Zealand

Key central bank tools for managing a floating exchange rate are:

  1. Changes in monetary policy interest rates– designed to influence “hot money” flows
  2. Direct intervention in the currency marketa)Buying domestic currency for an appreciationb)Selling domestic currency for a depreciation

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