Floating exchange rate

A floating exchange rate occurs when a country allows the price of its currency to vary based on supply and demand. Government intervention is not used to alter or maintain the price of the currency. Under this system, a number of factors can alter exchange rates, including the following:

  • Events impacting economic strength
  • Interventions by central banks
  • Speculation by investors
  • The interest rate differentials between countries
  • The relative strength of economies