FLOATING_EXCHANGE_RATE

FLOATING_EXCHANGE_RATE 👉A floating exchange rate is a type of currency exchange system where the value of a country’s currency is determined by the foreign exchange market based on supply and demand relative to other currencies. This means that the currency’s value can fluctuate freely and is not fixed by the government or central bank. 👉The impact of a floating exchange rate system in developing countries can include: #Currency_Instability 👉 Developing countries often have less diversified economies and are more vulnerable to external shocks, leading to greater exchange rate volatility. Frequent fluctuations in the exchange rate can create uncertainty and make it difficult for businesses and consumers to plan and make long-term investments. #Inflationary_Pressures 👉A depreciating exchange rate can lead to higher import prices, which can then be passed on to consumers, causing inflationary pressures. This can erode the purchasing power of the local currency and make it harder for the government to control inflation. #Financial_Instability 👉Volatile exchange rates can lead to capital flight, as investors seek to avoid currency risk, further destabilizing the financial system. This can make it more difficult for the government to manage the economy and implement effective monetary and fiscal policies.