floating exchange rates

Floating exchange rates are currencies whose values are determined by the foreign exchange market based on supply and demand. Unlike fixed rates set by governments, floating rates fluctuate constantly as traders buy and sell currencies, influenced by economic factors, interest rates, and geopolitical events. This system allows exchange rates to adjust automatically, helping economies respond to changing conditions. While it offers market-driven flexibility, it can also lead to volatility, which businesses and governments monitor closely to manage risks associated with currency fluctuations.