Under a flexible exchange rate system, exchange rates are determined by free markets.

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In a flexible exchange rate system, exchange rates are predominantly determined by the supply and demand of currencies in the international foreign exchange market, which operates based on free market principles. Central banks only intervene in the market by buying or selling their own currencies in exceptional circumstances, but they do not have the power to set exchange rates artificially.

Under a Flexible Exchange Rate System, Exchange Rates Are Determined