Floating Exchange Rate

Floating Exchange Rate Meaning:
In foreign exchange terminology, a floating exchange rate policy means that the country involved permits the value of its currency to be determined solely by supply and demand factors in the foreign exchange market. This permits its currency’s exchange rate to fluctuate freely against the currencies of other countries.

Floating Exchange Rate Example:
Floating exchange rates became the norm after the U.S. Dollar was removed from the Gold Standard in the early 1970’s and currency values were then generally permitted to fluctuate freely. Nevertheless, some countries, like those belonging to the European Union, preferred to pursue a contrasting linked exchange rate policy to stabilize currency fluctuations, often by central bank intervention in the currency market.