Floating (flexible) exchange rate

Definition

A floating (flexible) exchange rate is a system where the value of a currency is allowed to fluctuate according to the foreign exchange market without direct intervention from the country's central bank. It changes in response to market forces such as supply and demand, interest rates, and economic indicators.

Related terms

Fixed Exchange Rate: A system where a country's currency value is tied to another currency or a basket of currencies, or sometimes to the value of a commodity such as gold.

Currency Devaluation: The deliberate downward adjustment of a country's currency value relative to another currency, group of currencies, or standard.

Forex Market: An over-the-counter (OTC) marketplace that determines the exchange rate for global currencies