A floating exchange rate is determined by the private market through supply and demand. A fixed, or pegged, rate is a rate the government (central bank) sets and maintains as the official exchange Floating exchange rates (system) – when the exchange rate of a currency is determined by the supply and demand for that currency. Appreciation (of a currency) – occurs when a currency increases in value against another currency, i.e. it can buy more of another currency. In a floating exchange rate regime, the macroeconomic fundamentals of countries affect the exchange rate in international markets, which, in turn, affect portfolio flows between countries. Therefore, floating exchange rate regimes enhance market efficiency.