Floating exchange rates refer to a system where the value of a currency is determined by market forces, such as supply and demand, rather than being fixed or pegged to another currency. This means that the exchange rate can fluctuate freely, allowing it to respond to changes in economic conditions, interest rates, and investor sentiment. Countries with floating exchange rates, like the United States and Canada, allow their currencies to rise or fall against others. This system can provide flexibility and help absorb economic shocks, but it can also lead to volatility, making it challenging for businesses and investors to predict currency values.