Economics Exchange Rates Questions
Floating exchange rates refer to a system where the value of a country's currency is determined by the forces of supply and demand in the foreign exchange market. Under this system, the exchange rate fluctuates freely based on various factors such as interest rates, inflation, economic performance, and market expectations. Central banks and governments do not intervene directly to control or fix the exchange rate, allowing it to adjust naturally. Floating exchange rates provide flexibility and allow for automatic adjustments to external shocks, promoting international trade and economic stability.