Free floating

governments at one time or another seek to “manage” the value of their currency through changes in interest rates and other means of controls.

Managed floating exchange rates

Most governments engage in managed floating systems, if not part of a fixed exchange rate system.

The advantages of fixed exchange rates

Fixed rates provide greater certainty for exporters and importers and, under normal circumstances, there is less speculative activity - though this depends on whether dealers in foreign exchange markets regard a given fixed exchange rate as appropriate and credible.

The advantages of floating exchange rates

Fluctuations in the exchange rate can provide an automatic adjustment for countries with a large balance of payments deficit. A second key advantage of floating exchange rates is that it allows the government/monetary authority flexibility in determining interest rates as they do not need to be used to influence the exchange rate.