Explain how floating rates work?

Explain how floating rates work? 

Ans. Floating exchange rates mean that currencies change in relative value all the time. In a floating exchange rate system, when the demand for a currency is low, its value decreases just as with any other product or service. But the result of a devalued currency is that imported goods seem more expensive to the people holding that currency. What used to require $5 to buy now requires $10. Because imported goods seem more expensive, people usually start buying more domestic goods, which tends to create jobs and stimulate the economy in general. The concept of floating exchange rates was not a genuine reality until the Bretton Woods agreement and the International Monetary Fund (IMF) were created to facilitate systems of exchange. Before that, the gold standard, whereby the value of a piece of currency was directly linked to a specific quantity of gold, was the prevalent method of currency valuation around the world. However, the opposite is also true. When the currency becomes more valuable, imported items seem cheaper, and suddenly people want to buy fewer domestically produced items. This tends to increase unemployment and slow the economy in general.