What is Floating Exchange Rate

There are two types of exchange rates, a Floating Point Exchange rate and a  Fixed Exchange Rate. A floating exchange rate or flexible exchange rate is when a currency’s value is allowed to fluctuate according to the foreign exchange market.

A currency that uses a floating exchange rate is known as a floating currency.  Many economists agree that floating currency in many cases is preferable to fixed because it can dampen shocks to the system and prevent a crisis due to business cycles. On the other hand, some economists due suggest that a fixed exchange rate can create better stability.