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 happens when exchange rates are flexible?

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 the benefits of flexible exchange rate system?

The main economic advantages of floating exchange rates are that they leave the monetary and fiscal authorities free to pursue internal goals—such as full employment, stable growth, and price stability—and exchange rate adjustment often works as an automatic stabilizer to promote those goals.