The document discusses floating exchange rates that were adopted in 1973 as an alternative to fixed rates. Proponents argued that floating rates would reduce economic volatility and facilitate free trade by offsetting inflation rate differences. However, critics stated that floating rates could lead to uncertainty and encourage speculation. A survey by the IMF found that exchange rate volatility since the 1970s did not hamper world trade growth and that speculation was not clearly linked to floating rates. While some economists call for a return to fixed rates, history shows that any long-term stable system requires price stability and credibility.

1. INTERNATIONAL FINANCIAL
MANAGEMENT
EVALUATION OF FLOATING RATES
By
V S SARMA ,PROF, MBA VJIT
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2. INTERNATIONAL FINANCIAL MANAGEMENT
 Floating /Flexible regime was adopted in 1973
 As per the Proponents of Floating regime :
 This system would reduce Economic volatility
and facilitates free trade.
 Floating rates offset the differences in inflation
rates so that other elements such as : wages,
employment, out put etc., need not be adjusted.
Earlier experience revealed that the fixed rates
did not efficiently work for longer periods
 Criticism :
 Critics state that the system leads to uncertainty
which discourages free trade
 Floating system encourages speculation 2

3. INTERNATIONAL FINANCIAL MANAGEMENT
AS PER IMF SURVEY ON FLOATING REGIME:
 Exchange rate volatility since early 1970s does
not impede world trade. Instead world exports
increased for 8 years.
 The statement of critics that uncertainty in the
exchange rates, drives the investors in to
speculation, is also not valid.
 Actually, fixed exchange system is having more
chances of promoting speculation.
 Both fixed and floating regime have the same
fault of speculation. But fixed regime is having
more fault than floating regime.
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4. INTERNATIONAL FINANCIAL MANAGEMENT
Keeping in view inflationary trends, a no. of
economists have called for a return to fixed
regime.
 Although history never offers a convincing
model for a system that will lead to long
term exchange rate stability, it points outs 2
(two) basic requirement:
 Credible system
 System must have price stability build into its
very core
Without price stability the system will not be
credible
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