What are freely exchange rates?

The concept of a floating exchange rate refers to a monetary system in which the value of a nation's currency is determined by the forces of supply and demand in the foreign exchange market, as opposed to being set or controlled by the government.

In a floating exchange rate system, the market dynamics of buyers and sellers dictate the exchange rate between two currencies, allowing for fluctuations in value over time.

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This system is seen as more market-driven and responsive to economic conditions compared to a fixed exchange rate, where the government sets the rate and maintains it through intervention.

A fixed exchange rate, on the other hand, involves the government setting the exchange rate and intervening in the market to maintain it, either through the use of reserves or other monetary policy tools.