Floating Exchange Rate

A floating exchange rate is a system where the value of a country's currency is determined by supply and demand in the foreign exchange market. Unlike fixed rates, which are pegged to another currency, floating rates fluctuate based on various factors, such as economic indicators, interest rates, and political stability. This means that the currency's value can change frequently, reflecting the market's perception of the country's economic health. This system allows for more flexibility but can also lead to greater volatility in currency values.