Definition of flexible exchange rate

A flexible exchange rate, also known as a floating exchange rate, is a system in which a currency's exchange rate is determined solely by market forces of supply and demand. In this system, the exchange rate is not fixed by the government or central bank, and is instead allowed to fluctuate in response to changes in the global market. The advantage of a flexible exchange rate is that it can help to absorb shocks and imbalances in the economy by allowing the exchange rate to adjust accordingly. This system is used by many countries around the world today.

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