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.

RELATED TERMS
  1. Exchange Rate Mechanism (ERM)

    An exchange rate mechanism is based on the concept of fixed currency ...
  2. Managed Currency

    A managed currency is one whose exchange rate is affected by ...
  3. Fixed Exchange Rate

    A fixed exchange rate is a regime where the official exchange ...
  4. Currency

    Currency is a generally accepted form of money, including coins ...
  5. Currency Board

    A currency board is a monetary authority that makes decisions ...
  6. Linked Exchange Rate System

    A linked exchange rate system is method of managing a nation's ...
Related Articles
  1. Trading

    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. Trading

    The Effects Of Currency Fluctuations On The Economy

    Currency fluctuations are a natural outcome of the floating exchange rate system that is the norm for most major economies.
  3. Trading

    6 Factors That Influence Exchange Rates

    An in depth look at out how a currency's relative value reflects a country's economic health and impacts your investment returns.
  4. Trading

    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.
  5. Trading

    Drastic Currency Changes: What's The Cause?

    Currency fluctuations often defy logic. Learn the trends and factors that result in these movements.
  6. Insights

    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.
  7. Trading

    Traveling Abroad? Get the Best Exchange Rates

    When you exchange currencies, here’s how to make sure you are getting top value on the trade.
  8. Managing Wealth

    Top Tips For Exchanging Money

    Take these tips to heart to avoid wasting money when you exchange currencies.
  9. Trading

    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.
RELATED FAQS
  1. How are international exchange rates set?

    Knowing the value of your home currency in relation to different foreign currencies helps investors to analyze investments ... Read Answer >>
  2. What is foreign exchange?

    Foreign exchange is the conversion of a country's currency into another. In a free economy, a country's currency is valued ... Read Answer >>
  3. How often do exchange rates fluctuate?

    Exchange rates float freely against one another, which means they are in constant fluctuation, as they are driven by demand. Read Answer >>
  4. How do changes in national interest rates affect a currency's value and exchange ...

    Generally, higher interest rates increase the value of a given country's currency, but Interest rates alone do not determine ... Read Answer >>
  5. How do I find out my bank's bid-ask spread for currency conversions?

    Learn how to find your bank's bid-ask spreads for currency conversions, and understand why you should consider alternative ... Read Answer >>
Hot Definitions
  1. Return on Assets - ROA

    Return on assets (ROA) is an indicator of how profitable a company is relative to its total assets.
  2. Fibonacci Retracement

    A term used in technical analysis that refers to areas of support (price stops going lower) or resistance (price stops going ...
  3. Ethereum

    Ethereum is a decentralized software platform that enables SmartContracts and Distributed Applications (ĐApps) to be built ...
  4. Cryptocurrency

    A digital or virtual currency that uses cryptography for security. A cryptocurrency is difficult to counterfeit because of ...
  5. Financial Industry Regulatory Authority - FINRA

    A regulatory body created after the merger of the National Association of Securities Dealers and the New York Stock Exchange's ...
  6. Initial Public Offering - IPO

    The first sale of stock by a private company to the public. IPOs are often issued by companies seeking the capital to expand ...
Trading Center