Understanding Floating Exchange Rates

In the context of international finance, exchange rate regimes are important mechanisms that countries use to manage their currencies relative to others. An exchange rate regime determines how a country's currency value is established in the foreign exchange market. Some countries adopt floating rates, where the currency value fluctuates freely against others, while others may choose fixed or pegged rates to stabilize their currency. Identifying the right regime is crucial for economists and investors, as it affects trade, investment decisions, and economic stability.

Based on this understanding, identify the term that best describes an exchange rate system where a currency’s value is allowed to fluctuate according to the foreign exchange market.