Adjustment

AAA

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.

INVESTOPEDIA EXPLAINS '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.

RELATED TERMS
  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. Pegging

    1. A method of stabilizing a country's currency by fixing its ...
  5. Forex - FX

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

    A system of exchange rate adjustment in which a currency with ...
Related Articles
  1. Forex Education

    Currency Exchange: Floating Rate Vs. Fixed Rate

    Baffled by exchange rates? Wonder why some currencies fluctuate while others are pegged? This article has the answers.
  2. Forex Education

    How To Profit From Interventions In The Forex Market

    The forex market can be extremely profitable. Learn how to spot an intervention and trade when it's occurring.
  3. Forex Education

    Dual And Multiple Exchange Rates 101

    Why would a country choose to implement dual or multiple exchange rates? It's risky, but it can work.
  4. Forex

    Main Factors That Influence Exchange Rates

    The exchange rate is one of the most important determinants of a country's relative level of economic health, and can impact your returns.
  5. Forex Education

    Why China's Currency Tangos With The USD

    Investopedia explains: It takes two to tango, but unless both partners move in perfect cohesion, a sequence of graceful maneuvers can be reduced to a series of clumsy moves. The latter depiction ...
  6. Forex Education

    America's Loss Is The Currency Market's Gain

    The Smithsonian Agreement hurt the U.S. in the short-term, but was necessary in furthering real market-driven exchange rates.
  7. Forex Education

    A Primer On Currency Regimes

    Currency regimes are dynamic and complex, reflecting the ever-changing landscape of their respective nations' monetary and fiscal policies.
  8. Forex

    How are international exchange rates set?

    International currency exchange rates display how much one unit of a currency can be exchanged for another currency. Currency exchange rates can be floating, in which case they change continually ...
  9. Forex Education

    How Inflation-Fighting Techniques Affect The Currency Market

    Central banks use these strategies to calm inflation, but they can also provide longer-term clues for forex traders.
  10. Forex Education

    The Pros And Cons Of A Pegged Exchange Rate

    A pegged currency can give a country many advantages, but these advantages come at a price.

You May Also Like

Hot Definitions
  1. Commercial Paper

    An unsecured, short-term debt instrument issued by a corporation, typically for the financing of accounts receivable, inventories ...
  2. Federal Funds Rate

    The interest rate at which a depository institution lends funds maintained at the Federal Reserve to another depository institution ...
  3. Fixed Asset

    A long-term tangible piece of property that a firm owns and uses in the production of its income and is not expected to be ...
  4. Break-Even Analysis

    An analysis to determine the point at which revenue received equals the costs associated with receiving the revenue. Break-even ...
  5. Key Performance Indicators - KPI

    A set of quantifiable measures that a company or industry uses to gauge or compare performance in terms of meeting their ...
  6. Bank Guarantee

    A guarantee from a lending institution ensuring that the liabilities of a debtor will be met. In other words, if the debtor ...
Trading Center