How does a floating exchange rate system determine currency values? What are the main factors driving exchange rate movements?

How does a floating exchange rate system determine currency values? What are the main factors driving exchange rate movements?

• A. Through supply and demand in the foreign exchange market; factors include interest rate differentials, inflation, relative growth, speculation, and terms of trade.
• B. Through government fixed values; factors include only government policy, not market forces.
• C. Through the price of gold; factors include mining output and central bank reserves.
• D. Through direct control by central bank with no external forces.

Answer: (A)