Floating Exchange Rates
Floating exchange rates are determined entirely by market forces of supply and demand for currencies. Governments do not intervene to fix or manage the rate. Most major currencies float today.
Real World
After the 2016 Brexit vote, the pound fell roughly 15% against the dollar almost overnight as markets repriced UK risk — a real demonstration of how floating rates respond instantly to changing conditions.
Exam Focus
Always link exchange rate changes to trade competitiveness AND inflation consequences to show chain of reasoning.
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