Flexible exchange rates can be defined as exchange rates determined by global supply and demand of currency. In other words, they are prices of foreign exchange determined by the market, that can rapidly change due to supply and demand, and are not pegged nor controlled by central banks.

What is meant by flexible exchange rate?

A flexible exchange-rate system is a monetary system that allows the exchange rate to be determined by supply and demand. Every currency area must decide what type of exchange rate arrangement to maintain.

What do you mean by flexible exchange rate and its advantages?

Flexible exchange rates eliminate the need for central banks to hold international reserves. Flexible exchange rates are helpful to do away with barrier to trade and capital movements. Flexible exchange rate enhances the efficiency in the economy by achieving optimum: resources allocation.