DEFINITION of 'Adjustment'

The use of mechanisms by a central bank to influence a home currency's exchange rate. An adjustment is specifically made if the exchange rate is not pegged to another currency, meaning that the currency is valued according to a floating exchange rate. Because the central bank intervenes in the home currency's exchange rate to reduce short-term fluctuations, this is considered a managed floating exchange rate.

BREAKING DOWN 'Adjustment'

Central banks may become involved if they believe that movements in the home currency are too "extreme", especially since a rapid increase or decrease in a currency's value can lead to a significant effects on its economy. Inconsistent adjustment policies in terms of an exchange rate mechanism (ERM) result in uncertainty on the part of investors, and is referred to as a "dirty" managed exchange rate policy.

  1. Exchange Rate

    The price of a nation’s currency in terms of another currency. ...
  2. Exchange Rate Mechanism - ERM

    An exchange rate mechanism is based on the concept of fixed currency ...
  3. Central Bank

    The entity responsible for overseeing the monetary system for ...
  4. Forex - FX

    The market in which currencies are traded. The forex market is ...
  5. Crawling Peg

    A system of exchange rate adjustment in which a currency with ...
  6. Pegging

    1. A method of stabilizing a country's currency by fixing its ...
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