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.

BREAKING DOWN '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. Managed Currency

    A managed currency is one whose exchange rate is affected by ...
  2. International Currency Exchange ...

    An international currency exchange rate is the rate at which ...
  3. Exchange Rate

    An exchange rate is the price of a nation’s currency in terms ...
  4. Adjustment

    The use of mechanisms by a central bank to influence a home currency's ...
  5. Currency ETF

    Currency ETFs (exchange-traded funds) aim to replicate movements ...
  6. Currency Board

    A currency board is a monetary authority that makes decisions ...
Related Articles
  1. Trading

    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.
  2. Trading

    Drastic Currency Changes: What's The Cause?

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

    6 Top-Traded Currencies and Why They're So Popular

    Every currency has specific features that affect its underlying value and price movements in the forex market.
  4. Personal Finance

    The Worst Place to Exchange Currency

    Exchanging currency is a necessary part of traveling, but not all currency exchanges are created equal.
  5. Trading

    Top 5 Reasons To Invest In Currencies

    Here's why you should get into the forex market.
  6. Trading

    Organize Price-Band Relationships In Bollinger Bands®

    Bollinger Bands have become an enormously popular market tool since the 1990s but most traders fail to tap its true potential.
RELATED FAQS
  1. Why is the U.S. dollar shown on the top of some currency pairs and on the bottom ...

    All currencies are traded in pairs. The first currency in the pair is called the base currency while the second is called ... Read Answer >>
  2. Why isn't the EUR/USD currency pair quoted as USD/EUR?

    In a currency pair, the first currency is called the base currency and the second is the quote currency, a longtime convention ... Read Answer >>
  3. What is the difference between Moving Average Envelopes and Bollinger Bands®?

    Read about the differences between how Bollinger Bands and moving average envelopes are constructed and what that means for ... Read Answer >>
  4. What is the difference between a nation's current account deficit and its currency ...

    Learn the respective meanings of the two terms, current account deficit and currency valuation, and understand the relationship ... Read Answer >>
Hot Definitions
  1. 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 ...
  2. Cost of Goods Sold - COGS

    Cost of goods sold (COGS) is the direct costs attributable to the production of the goods sold in a company.
  3. Profit and Loss Statement (P&L)

    A financial statement that summarizes the revenues, costs and expenses incurred during a specified period of time, usually ...
  4. Monte Carlo Simulation

    Monte Carlo simulations are used to model the probability of different outcomes in a process that cannot easily be predicted ...
  5. Price Elasticity of Demand

    Price elasticity of demand is a measure of the change in the quantity demanded or purchased of a product in relation to its ...
  6. Sharpe Ratio

    The Sharpe ratio is the average return earned in excess of the risk-free rate per unit of volatility or total risk.
Trading Center