The theoretical case in favour of floating rates, while influenced by the various considerations dealt with in the last chapter, is based overwhelmingly on the belief, held firmly by virtually all academic economists, in the existence of an ideal rate at which imports and exports would automatically balance. According to this belief, all that is needed is to allow the exchange rate to float to that rate, and troublesome import surpluses or export surpluses would disappear. A floating exchange would then tend to remain around this equilibrium rate and this would keep imports and exports permanently balanced.
KeywordsExchange Rate Foreign Exchange Foreign Trade Equilibrium Level Forward Rate
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