Free Exchanges

Free Exchanges

Free Exchanges, a condition in which the rate of exchange, the price of one countr32s currency in terms of another, or the number of units of one currency which exchange for a given number of units of another currency, is allowed to vary continuously with variations in the world demand for and supply of them. For the purpose of international exchange a currency is regarded as a commodity which facilitates the exchange of other commodities, and like other commodities its value in exchange for other currencies is subject to the laws of supply and demand. Under free exchanges, if the supply of a currency, i.e. the amount offered for sale at any given time, exceeds the existing demand for it, its value in exchange will tend to fall and so stimulate the demand and diminish the excess supply.

When the external value of a currency unit is not fixed in terms of a precious metal (such as gold), or is not supported by Government action, it is nominally free to fluctuate without limit. Wide and unpredictable fluctuations may be considered harmful to a country's foreign trade, and this has led most countries to establish a range of artificial methods to ensure exchange rate stability.



Free Goods, non-economic goods, i.e. those which are not scarce in relation to the demand for them and which therefore have no price or exchange value even though they may have utility or give satisfaction in use.

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consumeraffairs.org.uk

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