What is meant by a floating exchange rate? A fixed exchange rate?

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The Answer is A floating exchange rate, also known as a flexible exchange rate, is a type of exchange rate regime in which the value of a currency is allowed to fluctuate according to the foreign exchange market. The value of the currency is determined by supply and demand factors, which include interest rates, inflation rates, trade balances, economic performance, and other market forces. Governments and central banks may intervene in the market occasionally to stabilize or influence the currency's value, but generally, the currency's value is left to be determined by market dynamics.

In contrast, a fixed exchange rate, also known as a pegged exchange rate, is a regime where a country's currency value is tied or pegged to another major currency like the US dollar, euro, or a basket of currencies, or to a measure of value such as gold. The central bank of the country with a fixed exchange rate regime will buy and sell its own currency on the foreign exchange market in return for the currency to which it is pegged to maintain its currency's value within a narrow band. This provides stability in exchange rates, which can facilitate international trade and investment, but it also requires the country to maintain large reserves of foreign currency to manage its exchange rate and can limit the central bank's ability to adjust monetary policy to respond to domestic economic conditions.

What Is Meant by a Floating Exchange Rate? a Fixed