Currency Band

AAA

DEFINITION of 'Currency Band'

A currency system that establishes a trading range that a currency's exchange rate can float between. A currency band represents the price floor and ceiling within which the price of a given currency can trade, and is like a hybrid of a fixed exchange rate and a floating exchange rate. The currency band restricts how much the price can move relative to a reference currency or currencies.

INVESTOPEDIA EXPLAINS 'Currency Band'

If the value of the currency begins trading outside the band, then the country of that currency will usually revert to a fixed exchange rate. This usually stabilizes the currency's price back within the band. The Chinese yuan is an example of a currency that moves within a currency band.

RELATED TERMS
  1. Currency Peg

    A country or government's exchange-rate policy of pegging the ...
  2. Spot Next

    A term used in foreign-currency trading. "Spot next" denotes ...
  3. Nonconvertible Currency

    Any currency that is used primarily for domestic transactions ...
  4. Cash

    Legal tender or coins that can be used in exchange goods, debt, ...
  5. Currency

    A generally accepted form of money, including coins and paper ...
  6. Currency Option

    A contract that grants the holder the right, but not the obligation, ...
RELATED FAQS
  1. If a country's currency is determined by the strength of its economy, why isn't the ...

    Generally speaking, when Country A's currency is worth more than that of Country B, it does not necessarily mean that Country ... Read Full Answer >>
  2. What does rollover mean in the context of the forex market?

    In the forex (FX) market, rollover is the process of extending the settlement date of an open position. In most currency ... Read Full Answer >>
  3. Where can I find year-to-date (YTD) returns for benchmarks?

    Benchmarks are securities or groups of securities against which investment performance is analyzed. Examples of popular equity ... Read Full Answer >>
  4. What is the effective interest method of amortization?

    The effective interest method is an accounting practice used for discounting a bond. This method is used for bonds sold at ... Read Full Answer >>
  5. Under what circumstances would someone enter into a repurchase agreement?

    In finance, a repurchase agreement represents a contract between two parties, where one party sells a security to the other ... Read Full Answer >>
  6. What type of asset allocation should I use if I am already retired?

    Among investors, asset allocation is a topic of discussion that receives a great deal of weight during the asset accumulation ... Read Full Answer >>
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

    Forex: Wading Into The Currency Market

    We go over the ground rules and available resources needed for this undertaking.
  3. Personal Finance

    The Currency Board: Understanding The Government's Bank

    Currency board, central bank - what's the difference? Find out more about this little-known monetary authority.
  4. Forex Education

    Top 7 Questions About Currency Trading Answered

    Whether you're puzzled by pips or curious about carry trades, your queries are answered here.
  5. Bonds & Fixed Income

    6 Factors That Influence Exchange Rates

    Find out how a currency's relative value reflects a country's economic health and impacts your investment returns.
  6. Professionals

    Why Investors Are Bailing on Bond ETFs

    Investors are fleeing bond ETFs. Should you follow the herd? Hint: It depends on the type of bond.
  7. Professionals

    Is a Bond Market Selloff Coming?

    A big investment management company is concerned about bond market conditions and allocating more capital to cash. Should you follow?
  8. Credit & Loans

    What is a Syndicated Loan?

    A syndicated loan is one that involves a group of lenders (called the syndicate) who pool their lending resources to make a loan.
  9. Investing Basics

    What is an Asset-Backed Security?

    An asset-backed security (ABS) is a debt security collateralized by a pool of assets.
  10. Stock Analysis

    Is Now the Time for Emerging Market Bonds?

    Higher yields and the potential for price appreciation await investors who take the plunge with emerging market bonds. Here's why.

You May Also Like

Hot Definitions
  1. Treasury Yield

    The return on investment, expressed as a percentage, on the debt obligations of the U.S. government. Treasuries are considered ...
  2. Bund

    A bond issued by Germany's federal government, or the German word for "bond." Bunds are the German equivalent of U.S. Treasury ...
  3. European Central Bank - ECB

    The central bank responsible for the monetary system of the European Union (EU) and the euro currency. The bank was formed ...
  4. Quantitative Easing

    An unconventional monetary policy in which a central bank purchases private sector financial assets in order to lower interest ...
  5. Current Account Deficit

    A measurement of a country’s trade in which the value of goods and services it imports exceeds the value of goods and services ...
  6. International Monetary Fund - IMF

    An international organization created for the purpose of: 1. Promoting global monetary and exchange stability. 2. Facilitating ...
Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!