Floating exchange rate

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A floating exchange rate is when the exchange rate between two currencies can change freely. It is also known as flexible exchange rate, or fluctuating exchange rate. Supply and demand will influence the exchange rate. Today, floating exchange rates between currencies are common. Usually, the market will regulate the exchange rate. In most cases, the central banks of the affected countries will not intervene. They might do something, if the exchange rate rises above a certain threshold, or it falls below a minimal value.

The opposite is a fixed exchange rate, or pegged exchange rate.