Which of the following directly impacts currency value in a floating exchange-rate system?

In a floating exchange-rate system, currency values are primarily determined by market fluctuations. This system allows exchange rates to be set by the forces of supply and demand in the foreign exchange market. Factors that influence these market conditions include economic indicators, interest rates, political stability, and overall market sentiment. Changes related to any of these aspects can lead to variations in how much one currency is worth relative to another.

Market fluctuations may arise from various sources, including changes in economic data releases, geopolitical events, or shifts in investor perceptions. For instance, if a country experiences strong economic growth relative to others, demand for that nation’s currency will likely increase, resulting in an appreciation of its value. This dynamic interaction exemplifies why market fluctuations are pivotal in determining currency values in a floating exchange-rate system.

In contrast, fixed supply, government intervention, and inflation targeting do not directly affect currency values in a floating system. A fixed supply refers to a predetermined amount of currency, which is not applicable in a system where values fluctuate freely based on market conditions. Government intervention may influence short-term values, but it is not a defining characteristic of floating rates, as these are meant to operate without direct governmental control. Finally, while inflation targeting is an economic strategy aimed at maintaining price