key term - Floating exchange rates

Definition

Floating exchange rates are a system in which the value of a currency is determined by the foreign exchange market based on supply and demand relative to other currencies. Unlike fixed exchange rates, these are not maintained by a country's government or central bank.

Related terms

Supply and Demand:

The basic economic principle that determines the price of goods, services, and currencies based on their availability (supply) and buyers' desires (demand).

Foreign Exchange Market: A global decentralized or over-the-counter market for trading currencies, determining their exchange rates.

Fixed Exchange Rates: A system where a country's currency value is tied to another currency or a basket of currencies, or something of value like gold, and does not fluctuate due to market conditions