Economics Aggregate Demand And Supply Questions
A floating exchange rate regime is a system in which the value of a country's currency is determined by the foreign exchange market, based on the supply and demand for that currency. Under this regime, the exchange rate fluctuates freely and is not fixed or controlled by the government or central bank. The exchange rate is determined by various factors such as interest rates, inflation, economic performance, and market expectations. A floating exchange rate regime allows for automatic adjustments in the exchange rate to maintain equilibrium in the foreign exchange market. It provides flexibility for the currency to appreciate or depreciate based on market conditions, which can help in correcting trade imbalances and promoting economic stability.