What is the flexible exchange-rate system?

A flexible exchange-rate system, also known as a floating exchange rate, is a monetary system where the value of a country's currency is determined by market forces without direct government or central bank intervention. In this system, currency values fluctuate based on supply and demand, influenced by factors like economic indicators, interest rates, and geopolitical events. This approach allows for automatic adjustments to trade imbalances and can enhance monetary policy independence. However, it can also lead to increased volatility in currency values.