Floating Exchange Rates

A currency with a floating exchange rate is one whose value is determined by demand for it relative to other currencies on foreign exchange markets. The opposite of a fixed exchange rate. Demand will be based on the underlying strength or weakness of the country's economy. If an economy's manufactured goods, its services, commodities or assets are in demand by foreigners the currency needed to pay for them will also be in demand and its value relative to other currencies will reflect that. The reverse will also be true.

See also: Bretton Woods, Dirty Float, Crawling Peg