Free-floating exchange rates are determined by the

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Free-floating exchange rates are determined by the forces of demand and supply in the foreign exchange market, where buyers and sellers of different currencies come together to exchange currencies for various purposes such as trade, investment or tourism. The exchange rates fluctuate based on the relative demand and supply of different currencies in the market. The government policies can influence the exchange rates indirectly, but the final determination is made by the market forces. The policies of foreign governments may also affect the exchange rates, but again, the final decision is made by the market forces. The domestic money market deals with the domestic interest rates and the supply of money, which can also indirectly affect the exchange rates but it is not the primary determinant of the exchange rates in a free-floating exchange rate system.

Free-Floating Exchange Rates Are Determined by the