A floating exchange rate is a system where the value of a currency is determined by the market forces of supply and demand relative to other currencies. This means that the exchange rate can fluctuate freely, influenced by factors such as economic indicators, interest rates, and geopolitical events. In contrast to a fixed exchange rate, where a currency's value is pegged to another currency or a basket of currencies, a floating exchange rate allows for more flexibility. Countries like the United States and Canada use floating exchange rates, which can lead to more dynamic adjustments in their economies.